ECB sits tight as virus jitters grow

[FRANKFURT] European Central Bank governors on Thursday held back from tweaking their pandemic stimulus for the eurozone, even as concerns about new virus variants and slow vaccination drives darken the economic outlook.

Having already ramped up support in December, the 25-member governing council announced no changes to its ultra-loose monetary policy.

The ECB last year took unprecedented steps to cushion the economic impact of the Covid-19 crisis on the eurozone.

Its biggest weapon is a pandemic emergency bond-buying scheme, known as PEPP or pandemic emergency purchase programme, that was in December topped up by 500 billion euros (S$804.3 billion) to reach a total envelope of 1.85 trillion euros. The scheme was also extended to March 2022.

In Thursday's statement, ECB governors introduced a sentence saying the envelope "need not be used in full" if financing conditions remain favourable, but that it also could be "recalibrated" if required.

As expected, the Frankfurt institution held key rates at historic lows, including a deposit rate of minus 0.5 per cent - meaning banks pay to store excess cash with the ECB.

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Policymakers also made no changes to their ultra-cheap bank loans, and are continuing their monthly pre-pandemic asset purchases to the tune of 20 billion euros.

The goal of the measures is to keep borrowing costs low to encourage spending and investment in the 19-nation currency club.

But clouds are gathering once more. The emergence of more contagious virus variants in Britain and South Africa has fuelled fears of a possible surge in outbreaks, at a time when many countries are already struggling to bring down Covid-19 cases.

Europe's top economy Germany this week extended its partial lockdown until February 14 and Chancellor Angela Merkel has not ruled out border checks to slow the spread of the new variants.

France and Spain have tightened their evening curfews, while non-essential shops are closed across much of the continent.

A sluggish start to vaccination drives in the European Union is also expected to drag on the recovery in the first quarter of 2021.

The ECB in December forecast 3.9 per cent growth for 2021, after an estimated contraction of 7.3 per cent in 2020.

AFP