Sunday March 07, 2021

ECB leaves monetary policy on hold as lockdown worries loom

Published : 21 Jan 2021, 21:53

  DF News Desk

Photo taken on Jan. 21, 2021 shows the European Central Bank (ECB) President Christine Lagarde during the live streaming of a press conference following ECB's governing council meeting held at the ECB headquarters in Frankfurt, Germany. Photo: Xinhua.

The European Central Bank (ECB) said on Thursday that it decided to keep the euro area key interest rates and other pandemic policy responses unchanged following its first monetary policy meeting in 2021, reported Xinhua.

Eurozone key interest rates will remain at record low levels, with the base interest rate, marginal lending rate and deposit rate unchanged at 0.00 percent, 0.25 percent and minus 0.50 percent, respectively, according to an ECB press release.

The central bank in December added 500 billion euros to its pandemic emergency purchase program (PEPP), taking the total firepower to 1.85 trillion euros. At the same meeting, it also extended the duration of the program to at least the end of March 2022.

The ECB said on Thursday that the total envelope need not be used in full if "favorable financing conditions can be maintained with asset purchase flows that do not exhaust the envelope over the net purchase horizon of the PEPP," but added that the envelope can also be recalibrated to maintain favorable financing conditions and counter pandemic shock.

The ECB's decision to hold fire came at a time when European countries are still struggling to bring down new COVID-19 cases. Germany, the currency bloc's largest economy, decided this week to extend its strict lockdown measures until mid-February. In France, a nationwide curfew starting at 6 p.m. was put into effect over the weekend.

It was worried that the fresh round of containment measures could again weigh on the eurozone economy that was seen slowly recovering from the immediate economic fallout in the third quarter last year.

In December, the ECB staff forecast the euro area annual real GDP growth at minus 7.3 percent in 2020 and 3.9 percent in 2021 in a baseline scenario. ECB President Christine Lagarde said on Thursday that the December macro-economic projections are "still broadly valid."

Lagarde said the risks surrounding the euro area growth outlook "remain tilted to the downside but less pronounced."

She cited encouraging signals including the news about the prospects for the global economy, the agreement on future EU-UK relations and the start of vaccination campaigns. Yet the ongoing pandemic and its implications for economic and financial conditions will be a source of the downside risks, she said.

The central bank president stressed that an important variant for the implementation of the PEPP is the so-called "favorable financing conditions," which would be assessed in a holistic approach, taken into account multiple indicators across all sectors, and also relative to the inflation dynamics.

Lagarde also reiterated the ECB's stance on the appreciation of the euro, which appeared to be a shared concern for journalists and analysts. "We will also continue to monitor developments in the exchange rate with regard to their possible implications for the medium-term inflation outlook," she said.

Meanwhile, a lot of attention has been given to the vaccine roll-out in Europe. Portugal's Prime Minister Antonio Costa told European parliamentarians on Wednesday that the vaccination campaign and economic and social recovery are the top priorities of the Portuguese Presidency of the Council of the EU.

While the roll-out of vaccines allows for greater confidence in the resolution of the COVID-19 health crisis, it will take time until widespread immunity is achieved, and further adverse developments related to the pandemic cannot be ruled out, Lagarde said on Thursday.

The EU in late December approved the use of two coronavirus vaccines. The European Commission on Tuesday called on member states to speed up the vaccination campaigns, with a target to inoculate 70 percent of the adult population by summer.

Meanwhile, 237 candidate vaccines are still being developed worldwide -- 64 of them in clinical trials -- in countries including Germany, China, Russia, Britain and the United States, according to information released by the World Health Organization on Jan. 15.