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Free AccessMNI POLICY: Meeting Account Shows ECB Ready To Boost Purchases
By Luke Heighton
FRANKFURT (MNI) - The European Central Bank is prepared to expand its bond
purchases if necessary, its Apr. 28-29 account showed, even though Governing
Council members did not unanimously support the measures announced at the
meeting.
"It was underlined that past experience showed that a loss of confidence in
financial markets had to be avoided and pre-emptive action was preferable," the
account showed.
Members commented it was "too early to conclude that the "severe" scenario
presented by ECB staff, for a 12% decline in GDP, was the most likely," amid
general agreement that the availability of new eurosystem staff macroeconomic
projections in June would be an appropriate point to adjust the pandemic
emergency purchasing programme and other instruments if needed.
"It was generally considered that [...] the "mild" scenario was probably
already too optimistic." This showed GDP falling by about 5%. A medium scenario
foresaw an 8% contraction.
The gathering of 19 central bank bosses "broadly" backed the decision to
introduce new pandemic emergency longer-term refinancing operations.
The June projections were very likely be revised down significantly
compared with the March 2020 ECB staff projections, members said. A swift
V-shaped recovery could "probably already be ruled out," though some improvement
owing to a relaxation of containment measures was expected in May, following a
large shock in April.
The economic effects of the pandemic are likely to continue for a "
considerable period" after the coronavirus has been contained, council members
added, with recovery slow.
There was widespread agreement that the short-term outlook for inflation
should be revised down, but there were differing opinions on the medium- to
long-term outlook. One council member pointed to a "significant risk of
deflation or very low inflation in the coming years."
Concerns about banks' non-performing loans, public debt and the nexus
between banks and sovereigns were prominent in discussions, though it was
suggested that "the probability of such risks occurring would depend on the
strength of the recovery in 2021." Further discussion was also needed about the
differing extent of the downturn in individual eurozone countries.
The impact of the pandemic on foreign trade, including the effect of
changes in the future structure of global production, was mentioned, alongside
risks surrounding emerging market economies.
One council member expressed concern that lowering the minimum rate in
TLTRO III to 50 basis points below the deposit facility rate could permit banks
to obtain funds in the operations and then deposit them at the deposit facility
rate instead of increasing lending to the private sector.
--MNI Frankfurt Bureau; +49-69-720-146; email: luke.heighton@marketnews.com
--MNI London Bureau; +44 203 865 3829; email: jason.webb@marketnews.com
[TOPICS: M$X$$$,M$$EC$]
To read the full story
Sign up now for free trial access to this content.
Please enter your details below.
Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.