ECB under pressure to bolster virus response at meeting

FRANKFURT AM MAIN: The European Central Bank (ECB) faces mounting pressure to signal further monetary stimulus as spiking Covid-19 cases and new restrictions darken the eurozone’s economic outlook.

ECB chief Christine Lagarde’s words will be closely scrutinised for every hint of possible action as the central bank weighs up boosting its pandemic response of more than a trillion euros.

It comes after she told the French daily Le Monde that any economic recovery seen during the summer “now risks losing momentum” as new shutdowns put in place to stem the second wave of the pandemic restrict business activity.

On Wednesday, Germany joined major economies France and Italy in announcing tough new measures – including closures of restaurants, bars and cultural activities – in an attempt to wrest control of the virus.

The news paints a gloomier picture of the final few months of 2020 than Lagarde and her team might have expected when she said that an uptick in virus cases only constituted “headwinds to the short-term outlook” at the previous central bank policy meeting six weeks ago.

At the time, ECB watchers were more concerned about the strength of the euro against the dollar than a downgraded outlook.

Instead, while the euro has stabilised, the economy has begun to slump.

Eurozone inflation was -0.3 per cent in September after dropping into negative territory in August – well below the ECB target of below, but close to, two per cent – as deflationary trends threaten future investment to get the economy moving again.

“With the eurozone inflation outlook already deteriorating for some time and the new wave of Covid-19 cases across Europe... the ECB is moving closer towards another round of easing,” ING analysts said.

But Lagarde will likely wait for a more accurate picture of the fourth quarter to emerge and hold off making a firm decision on bolstering the economy until a key policy meeting in December.

Current policymaking dates back to June, when the Frankfurt-based institution added to its pandemic stimulus package, known as PEPP. — AFP