THE European Central Bank (ECB) today kept its massive pandemic-fighting stimulus package in place, in a bid to help Europe’s ailing economies overcome the devastating impact of the Covid-19 crisis.

After calming jittery markets last month by promising to “significantly” step up the pace of its pandemic emergency bond purchases, the ECB’s governing council said such buys will keep going at the same accelerated rate.

All eyes are now focused on ECB president Christine Lagarde, who is likely to use her 2.30pm press conference to reiterate the message that there will be no premature end to “favourable financing conditions” until the crisis is deemed over and the rebound is firmly on track.

The Frankfurt institution today held interest rates at historic lows, including a deposit rate of -0.5% – meaning banks pay to store excess cash with the ECB.

The ECB’s €1.85 trillion (RM9.04 trillion) pandemic emergency bond purchasing programme (PEPP), set to run until March next year, was also kept intact, although the council stressed it stood ready to “adjust all of its instruments, as appropriate”, should it become necessary.

The goal of the ECB’s measures, which also include super cheap loans for banks, is to keep borrowing costs low to encourage spending and investment in the 19-nation currency club to drive up growth and inflation.

Lagarde may also repeat her plea for eurozone governments to share the load through fiscal stimulus.

Those efforts were given a boost when a top German court yesterday threw out a legal challenge against the European Union’s €750 billion recovery fund, paving the way for its ratification.

Lagarde has frequently called for the landmark fund to be implemented, saying it has a “key role” to play in nursing the region back to health.

Looking past inflation

The former French finance minister and ex-head of the International Monetary Fund can also expect to be quizzed about the future pace of asset purchases.

Following last month’s pledge to accelerate debt purchases in response to rising bond yields, the ECB’s weekly PEPP purchases have averaged €17 billion, compared to around €12 billion in January and February.

While investors are keen for any insight into the future rhythm of the purchases and how the ECB plans to eventually wind down the scheme, observers believe Lagarde will keep her cards close to her chest.

“Silence is golden,” ING bank economist Carsten Brzeski said, adding that the next meeting on June 10 should bring more clarity, when the ECB unveils new growth and inflation forecasts.

In quarterly projections published last month, the ECB surprised observers by slightly raising its 2021 growth forecast from 3.9% to 4%, fuelled by optimism about Europe’s Covid-19 vaccine roll-out and the global economic rebound.

While the speed of inoculations has picked up across the bloc in recent weeks after a bumpy start, many countries are battling the spread of more contagious virus variants, including strains first detected in Britain and South Africa.

Top eurozone economies Germany, France and Spain are among those that have extended or reimposed shutdowns and travel curbs to rein in Covid-19 cases, weighing on second-quarter growth prospects.

“In June, the ECB and markets will have a much better idea about the severity of the current wave of infections and restrictions as well as the progress of the vaccination campaign and its impact on the economic outlook,” said Berenberg bank economist Holger Schmieding..

Eurozone inflation, meanwhile, continued its upward trend and climbed to 1.3% last month, powered in part by higher energy prices.

Economists see inflation bounding even higher in the months ahead, possibly exceeding the ECB’s long-out-of-reach inflation target of “close to, but below” 2%.

Lagarde, however, stressed last month that price growth is being driven by “temporary factors” linked to the pandemic, such as pent-up consumer demand as virus curbs are relaxed.

The ECB “will see through that”, she said, and stick with its ultra-loose monetary policy so long as underlying inflation remains weak. – AFP, April 22, 2021.