sunny.png
Friday September 18th, 2020 7:13PM

European Central Bank expects to use full extent of stimulus

By The Associated Press
Related Articles
  Contact Editor

FRANKFURT, Germany (AP) — European Central Bank head Christine Lagarde said the bank would “likely” use all of the 1.35 trillion euros ($1.6 trillion) in planned stimulus to support the economy through the pandemic, which has caused a massive recession and is seeing a new rise in contagions.

After the ECB left its key rates and stimulus settings unchanged on Thursday, Lagarde said that strong central bank support was still necessary given high uncertainty about the recovery from the pandemic lockdowns. She repeated the bank's promise to keep the central bank's pandemic emergency bond-buying program running through mid-2021 - and in any case until the coronavirus crisis phase is over.

Lagarde said the economy's return to health will mainly depend on countries' ability to contain the outbreak. The recent increases in infection rates are “headwinds to the short-term outlook” while “a further sustained recovery remains highly dependent on the evolution of the pandemic and the success of containment policies.”

After some initial success in reversing large outbreaks in Spain, Italy and France, and after Germany’s success in containing a disastrous first wave, cases in Europe have started to rise again as people have returned from summer vacations and after some restrictions were eased.

The pandemic stimulus still has some 850 billion euros left unused, so even with no action Thursday the eurozone economy will still see substantial central bank support. The program pumps newly created money into the economy in an effort to keep credit flowing to businesses and promote growth and stronger inflation nearer to the bank's goal of just under 2%.

The decision by the ECB's governing council to leave its policy programs unchanged was widely expected, but some analysts expressed surprise at the lack of hints that the bank was ready to add more. Many observers have been predicting the bank will add to its bond purchase stimulus by year end. Lagarde indicated the bank's governing council had not discussed expanding the bond purchase efforts.

She also struck a relatively confident tone on two other issues regarded by some as signs of potential trouble: the stronger euro, which can hurt exporters just as they try to recover from the pandemic, and the inflation rate's drop below zero to 0.2%, far from the bank's target. Weak inflation is often a sign of economic weakness.

Lagarde indicated the low inflation reading was due to temporary factors and she made only a mild comment on the stronger euro. She said bank officials would “carefully assess incoming information, including the exchange rate.” The euro rose after the statement and traded about a cent higher at $1.19.

Economist Florian Hense at Berenberg bank found it surprising that Lagarde “refrained from almost any signal whatsoever for more stimulus.”

Oliver Rakau at Oxford Economics said that the ECB “may have sounded too confident for its own good.” He said Lagarde's lack of concern about the euro could help lift the euro even further, causing trouble that would demand more action. “So we still think the ECB will end up expanding the pandemic emergency purchase program by 200 billion euros later this year," he wrote in a research note. "In fact, the ECB's nonchalance may push it to do more.”

The Fed, meanwhile, has shifted its 2% interest rate target to an average, meaning that it could maintain stimulus for a longer period of time by letting inflation run higher than the target. That pro-stimulus stance could weaken the dollar further against the euro

The economy of the 19 euro currency countries plunged 11.8% in the April-June period from the previous quarter. Activity is picking up quickly but isn’t expected to regain pre-virus levels before 2022.

The ECB is also making 20 billion euros in monthly bond purchases from a stimulus effort launched before the outbreak. Other stimulus includes cheap, long-term credit for banks to help them lend to businesses, and a negative rate penalty of 0.5% on deposits left overnight by commercial banks as an incentive for them to lend the money rather than let it pile up at the central bank.

European governments have made big economic efforts at the national level, paying companies to keep workers on and extending loans. That has kept unemployment in the eurozone down at 7.9%, thought the rate is likely to rise after those programs expire.

At the EU level, governments have agreed to fund a 750 billion-euro recovery fund supported by common borrowing. The money would be spent from 2021 on projects aimed at supporting growth, digitalization and transforming the economy to reduce emissions of carbon dioxide, the main greenhouse gas blamed by scientists for climate change.

  • Associated Categories: Associated Press (AP), AP Business, AP Business - Economy, AP Business - Financial Markets, AP Business - Industries, AP Business - Financial Services
© Copyright 2020 AccessWDUN.com
All rights reserved. This material may not be published, broadcast, rewritten, or redistributed without permission.
European Central Bank expects to use full extent of stimulus
The European Central Bank has left its key stimulus policies unchanged with plenty still in the pipeline to bolster the eurozone economy’s rebound from the severe coronavirus shutdowns
2:32PM ( 10 minutes ago )
Wisconsin Democrats think they can avoid mistakes of 2016
Wisconsin Democrats are confident the lessons they learned when President Donald Trump won four years ago will ensure he doesn’t do it again
2:29PM ( 13 minutes ago )
Jane Fraser to become Citi CEO; 1st woman to lead major bank
Citigroup’s Jane Fraser will become the first woman ever to lead a Wall Street bank when she succeeds CEO Michael Corbat in February
2:23PM ( 19 minutes ago )
Associated Press (AP)
US sanctions Ukraine lawmaker who disclosed Biden recordings
The Trump administration has imposed sanctions on a Russian-linked Ukrainian lawmaker for interfering in the upcoming U.S. presidential election by releasing edited audio recordings intended to denigrate Democrat Joe Biden
1:39PM ( 1 hour ago )
GOP's slimmed-down virus bill scuttled by Senate Democrats
Senate Democrats have scuttled a scaled-back GOP coronavirus rescue package, saying the measure shortchanges too many pressing needs as the pandemic continues its assault on the country
1:22PM ( 1 hour ago )
EU force intercepts tanker with jet fuel headed to Libya
The European Union maritime force enforcing the U.N. arms embargo on Libya says it intercepted and redirected a tanker headed for Libya
1:14PM ( 1 hour ago )
AP Business
AP Explains: What's driving India-China military standoff
India and China are accusing each other of violating agreements along their disputed mountain border, even as they engage in talks to end increasing military tensions
11:06AM ( 3 hours ago )
GOP's slimmed-down virus bill expected to fail in Senate
A scaled-back GOP coronavirus rescue package appears certain to fail in a Senate test vote
11:01AM ( 3 hours ago )
The Latest: UN leader appeals for $35B for WHO initiatives
The Secretary-General of the United Nations appealed to donor countries and others to pitch in $35 billion for a World Health Organization-led initiative that aims to speed the research and development of tests, treatments and vaccines for the coronavirus
10:58AM ( 3 hours ago )
AP Business - Economy
Global markets turn lower with focus on tech stocks
Global stocks have turned lower as investors focus on volatility in tech stocks
7:44AM ( 6 hours ago )
Global stocks mixed after Wall Street rebounds from slump
Global stocks are mixed after Wall Street rebounded from a slump for tech stocks
5:33AM ( 9 hours ago )
Asian stocks gain after Wall Street rebounds from tech slump
Asian stock markets have gained after Wall Street rebounded from a slump for tech stocks
1:45AM ( 12 hours ago )
AP Business - Financial Markets
Citi picks Jane Fraser as next CEO, first woman in that role
Citigroup announced that Jane Fraser would succeed Michael Corbat as the bank’s next chief executive, making Fraser the first woman to ever lead a Wall Street bank
9:47AM ( 4 hours ago )
Macron urges tough EU stance against Turkish 'provocations'
French President Emmanuel Macron has urged fellow European leaders to stand up to the Turkish government as Turkey seeks to assert its energy rights in the eastern Mediterranean
9:38AM ( 5 hours ago )
European Central Bank's stimulus train to keep on rolling
The European Central Bank has left its key stimulus policies unchanged with almost a trillion euros still in the pipeline to bolster the eurozone economy’s rebound from the severe coronavirus shutdowns
8:16AM ( 6 hours ago )
AP Business - Industries
Stocks rally in Europe, US trading closed for holiday
European stock markets have closed with strong gains after a more subdued day in Asia
12:07PM ( 3 days ago )
Stocks push higher in Europe, US trading closed for holiday
European stocks are up strongly after a mixed close in Asia
8:16AM ( 3 days ago )
Global markets mixed after Wall Street slides
Global stock markets are mixed after Wall Street turned in its biggest weekly decline in more than two months
5:33AM ( 3 days ago )
AP Business - Financial Services
Wisconsin Democrats think they can avoid mistakes of 2016
Wisconsin Democrats are confident the lessons they learned when President Donald Trump won four years ago will ensure he doesn’t do it again
2:29PM ( 13 minutes ago )
Jane Fraser to become Citi CEO; 1st woman to lead major bank
Citigroup’s Jane Fraser will become the first woman ever to lead a Wall Street bank when she succeeds CEO Michael Corbat in February
2:23PM ( 20 minutes ago )
Huge fire at Beirut port sows panic after last month's blast
A huge fire at Beirut’s port raised new panic among residents still struggling with the traumatic effects of the catastrophic explosion at the same site last month
2:17PM ( 25 minutes ago )
California fire that killed 3 threatens thousands of homes
A Northern California wildfire is threatening thousands of homes after winds whipped it into a monster that incinerated houses in a small mountain community and killed at least three people
2:07PM ( 36 minutes ago )
Forbes: Cowboys most valuable NFL team at $5.7 billion
Forbes estimates the Dallas Cowboys are the NFL’s most valuable franchise at $5.7 billion, the 14th consecutive year they’ve held that distinction
2:00PM ( 42 minutes ago )