MNI REVIEW: ECB's Lagarde Opens Door To More December Easing

The European Central Bank laid the groundwork for additional stimulus in December at its meeting on Thursday, saying it will "recalibrate" its monetary policy tools to mitigate the economic threat posed by the Covid-19 pandemic's second wave following the publication of staff macroeconomic projections.

The eurozone's economic recovery is losing momentum more rapidly than expected as coronavirus infection rates resurge, ECB president Christine Lagarde told journalists following October's Governing Council meeting, adding that December's projections will be key to determining the response.

"On the basis of this updated assessment, the Governing Council will recalibrate its instruments, as appropriate, to respond to the unfolding situation," she said in her introductory statement.

No immediate moves were discussed at Thursday's meeting, which left policy settings on hold, Lagarde said, though committees have been tasked with investigating how to optimise all instruments at the ECB's disposal later this year.

ECB sources have told MNI that possible moves include topping up its pre-Covid quantitative easing, perhaps by another EUR120 billion, or boosting its Pandemic Emergency Purchase Programme.

The central bank could convene outside of scheduled monetary policy meetings if needed, as it "carefully assess" incoming information, "including the dynamics of the pandemic, prospects for a rollout of vaccines and developments in the exchange rate."

RISKS TO DOWNSIDE

Risks surrounding euro area growth remain clearly tilted to the downside, Lagarde said, with headline inflation likely to remain negative until early 2021. Under the circumstances, an "ambitious fiscal stance remains critical," with the Governing Council stressing the importance of the EU's EUR750 billion Next Generation funding package becoming operational "without delay."

It is not possible, Lagarde said, to precisely determine the effects of the latest round of lockdown measures on growth prospects, she said, though indications are of a softening of activity in Q4 compared with the previous quarter.

The ECB will also remain "extremely attentive" to the effects of the virus's second wave on banks.

Asked how she will address varying recovery rates across the eurozone once the pandemic has eased, Lagarde said the ECB has all the tools it needs, while emphasising that the Next Generation EU package and the EU's Rescue and Recovery Fund are "well placed" to support growth.