The European Central Bank (ECB) held this year’s first monetary policy meeting, and said in a statement on Thursday (Jan. 21) that it would stay the course regarding procedures instituted during the COVID-19 pandemic to counter its “negative” shock.
The central bank’s governing council said that Eurozone interest rates will stay at record lows, as would other policies instituted during the pandemic. The interest rate on main refinancing operations would stay the same at 0.0 percent. Interest rates on the marginal lending facility would remain at 0.25 percent. The deposit facility also would stay unchanged at a negative 0.50 percent.
ECB President Christine Lagarde said, per Bloomberg, that it is likely that economic output shrank in the final weeks of 2020, and that “a decline in the fourth quarter will travel into the first quarter.”
She also told Bloomberg that “risks surrounding the euro-area growth outlook remain tilted to the downside, but less pronounced.”
Lagarde added that December’s vaccine distribution “allows for greater confidence in the resolution of the health crisis.”
She said that extended talks would likely be scheduled in March to coincide with clearer economic forecasts. Most forecasts by economists have increasingly pointed to a contraction in the first three months of this year.
In December, the ECB extended its pandemic emergency purchase program (PEPP) through at least the end of March 2022 and added €500 billion ($607 billion). The ECB said the funds don’t have to be exhausted, and can be modified if necessary “to maintain favorable financing conditions” and to neutralize “pandemic shock.”
Net purchases under the asset purchase program (APP) will continue at a monthly pace of €20 billion, according to the ECB. Regular net asset purchases under the APP will continue as long as needed.
The Governing Council also said it would “continue to provide ample liquidity through its refinancing operations,” including the “third series of targeted longer-term refinancing operations (TLTRO III).”
The European Commission said this week that it is working on a plan to speed up vaccinations and testing in an effort to reduce and eliminate coronavirus infection rates. The EC is concerned about a third wave of the virus, which could be “potentially harsher.”
The European Central Bank is concerned that financial institutions will face further pandemic-fueled economic fallout this year as struggling businesses go bankrupt. ECB officials fear that government stimulus measures have camouflaged the gravity of the crisis.
We’re always on the lookout for opportunities to partner with innovators and disruptors.
Learn More