Coronavirus: ECB holds rates and bond-buying steady

Edmund Heaphy
Finance and news reporter
European Central Bank president Christine Lagarde speaking following a meeting of the bank's governing council in Frankfurt. (Thomas Lohnes/Getty Images)

The European Central Bank on Thursday made no changes to its expansive efforts to tackle the economic impacts of the coronavirus pandemic, leaving interest rates and its crisis bond-buying programme unchanged.

Last month, the bank significantly expanded its firepower in response to the crisis by increasing the size of the programme by €600bn (£538bn).

“Incoming information since our last monetary policy meeting in early June signals a resumption of euro area activity, although the level of activity remains well below the levels prevailing before the coronavirus pandemic” ECB president Christine Lagarde said on Thursday, noting that the outlook remains “highly uncertain.”

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The bank said on Thursday that it would continue purchases under the €1.35tn pandemic emergency purchase programme (PEPP) “until at least the end of June 2021 and, in any case, until it judges that the coronavirus crisis phase is over.”

The scale of the package will allow the bank to buy up most of the debt that will be issued by eurozone governments this year to fund their crisis stimulus measures.

Lagarde said that unless there were “significant upside surprises” that pointed to a stronger recovery in the eurozone, the bank’s “baseline remains that we will use the entire envelope of PEPP.”

The bank’s governing council chose to leave its key interest rate, known as the deposit facility rate, unchanged at minus 0.5%.

Lagarde once again called on European Union leaders to “quickly agree” on an “ambitious” fiscal stimulus package.

In May, the European Commission unveiled a huge €750bn coronavirus recovery plan, but aspects of the package face staunch opposition from certain member states.

In June, the bank lowered its 2022 inflation forecast from 1.5% to 1.3%, suggesting that it does not expect the unprecedented stimulus measures to push inflation towards its “below, but close to,” 2% target.

The crisis bond-buying programme comes in addition to the ECB’s existing asset-purchasing programme, which sees it buy around €20bn in eurozone bonds each month.

In early March, the bank expanded that programme to allow it to make €120bn in additional purchases by the end of 2020.

The bank said once again on Thursday that it would run that programme “as long as necessary” to reinforce other aspects of its monetary policy.

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In late March, amid market anxiety about the bank’s relatively meagre response to the crisis, the bank introduced the huge PEPP programme following an emergency meeting of its governing council.

In April, the bank lowered interest rates on a facility that provides cheap loans to eurozone banks and introduced a new facility that it said would provide an effective liquidity backstop to the bloc.

The bank — unlike the Bank of England or US Federal Reserve — is legally prohibited from directly financing the deficits of eurozone governments.

But, as part of its response to the crisis, it has chosen to relax or even abandon several self-imposed constraints on asset purchases, such as a limit on the proportion of bonds it can buy from a particular eurozone country.