MNI STATE OF PLAY: ECB Rates On Hold, Downside Risks Easing

The European Central Bank left monetary policy on hold Thursday, with President Christine Lagarde noting downside risks to the economy becoming less pronounced and the roll-out of vaccination programs providing grounds for optimism, even as credit standards tightened tighten across the euro area.

The ECB reaffirmed its "very accommodative" monetary policy stance, although now saying it was prepared to conduct net purchases under the pandemic emergency programme (PEPP), "over the pandemic period" -- a modest move away from a pledge to continue with purchases through the "pandemic period".

This was necessary to preserve favourable financing conditions, Lagarde said, with Governing Council members adopting a ""multifaceted, holistic approach" anchored to the inflation outlook.

Should such conditions be maintained with asset purchases that do not exhaust the envelope over the net purchase horizon of the PEPP, the entire EUR1.85 trillion envelope need not be used in full, Lagarde said. Equally, the envelope can be recalibrated if required to maintain favourable financing conditions to help counter the negative pandemic shock to the path of inflation, she added.

ECONOMY

Lagarde repeated her assessment that recent incoming data confirms the ECB December growth and inflation projections, in line with MNI's pre-meeting sources story, but reiterated that the Bank stands ready to adjust all policy instruments as required.

Economic developments continue to be uneven across sectors, Lagarde noted, with the services sector harder hit by the new restrictions on social interaction and mobility than the industrial sector.

Fiscal measures continue to support households and firms, she added, and should be continued in a target, temporary fashion, while the Governing Council called on politicians to implement the Next Generation EU package without delay.