ECB boosts pandemic stimulus package to 1.35t euros

Frankfurt

THE European Central Bank (ECB) approved a bigger-than-expected expansion of its stimulus package on Thursday to prop up an economy plunged by the coronavirus pandemic into its worst recession since World War II.

Just months after a first raft of crisis measures, the ECB said it would raise bond purchases by 600 billion euros (S$946 billion) to 1.35 trillion euros and that purchases would run at least until end-June 2021, six months longer than first planned.

It also said it would re-invest proceeds from maturing bonds in its pandemic emergency purchase scheme at least until the end of 2022.

ECB president Christine Lagarde scotched speculation that the bank could follow the US Federal Reserve in buying sub-investment grade bonds, however, saying that option was not even discussed by policymakers.

The announcement, which comes just weeks after Germany's Constitutional Court ruled that the ECB had already been exceeding its mandate with a longstanding asset purchase programme, prompted a rally in the euro and bond markets.

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The bank dramatically revised downward its baseline scenario for euro zone output this year to a contraction of 8.7 per cent from the modest 0.8 per cent rise it had forecast only in March.

It predicted a partial rebound with growth of 5.2 per cent next year and 3.3 per cent in 2022 but Ms Lagarde told a news conference that signs of any recovery so far were "tepid", and that risks to its baseline projection were on the downside.

"The euro area economy is experiencing an unprecedented contraction. There has been an abrupt drop in economic activity as a result of the coronavirus pandemic and the measures taken to contain it," she said.

She welcomed what she called the "ambitious" proposal of the European Commission for a 1.1 trillion euro budget for the bloc for 2021-27 with an extra recovery fund worth 750 billion euros.

The ECB earlier committed to buying up to 1.1 trillion euros worth of bonds this year. But even record purchases have struggled to bring down yields on debt issued by countries on the 19-nation bloc's periphery, particularly Italy, hit hard by the virus and already struggling with a large debt burden. REUTERS