ECB gives eurozone another shot in the arm to fight pandemic

Frankfurt

THE European Central Bank (ECB) rolled out yet more stimulus measures on Thursday to lift the currency bloc out of a double-dip recession and provide support to the economy while its 350 million people wait for coronavirus vaccines to be deployed.

ECB president Christine Lagarde expects growth to rebound more slowly next year as the pandemic continues to weigh on output but the recovery could be quicker in 2022 than earlier thought, its updated economic projections showed on Thursday.

With many businesses shuttered, unemployment surging and debt hitting record highs, central bank cash has thrown governments and firms a lifeline this year but much of 2021 will pass before significant relief is likely.

Making good on its promise to keep supporting the economy during the pandemic, the ECB expanded its debt purchase scheme and agreed to provide banks with even more ultra-cheap liquidity as long as they keep passing the cash onto companies.

"Uncertainty remains high, including with regard to the dynamics of the pandemic and the timing of vaccine roll-outs," the ECB said. "The Governing Council therefore continues to stand ready to adjust all of its instruments, as appropriate"

Ms Lagarde said the ECB expects gross domestic product (GDP) to expand by 3.9 per cent per cent next year, slower than its September forecast of 5 per cent. But in 2022, growth is seen at 4.2 per cent, above a previous projection of 3.2 per cent. She also sees inflation next year at one per cent, unchanged from its last projection, while in 2022, inflation is seen at 1.1 per cent against 1.3 per cent seen three months ago. In the bank's initial projection for 2023, inflation is expected to rise to 1.4 per cent, still well short of the ECB's target of almost 2 per cent.

Ms Lagarde added that risks to the eurozone economy remained tilted to the downside but had become less pronounced.

The ECB increased the overall size of its Pandemic Emergency Purchase Programme by 500 billion euros (S$810 euros) to 1.85 trillion euros, in line with market expectations. It also extended the scheme by nine months to March 2022, with the aim of keeping government and corporate borrowing costs at record lows.

Reinvestments of cash maturing from the emergency bond purchase scheme were extended by one year until the end of 2023. The ECB also extended the period during which banks will get a one per cent interest rate from the central bank for borrowing at its long-term cash auctions by one year to June 2022.

Aiming to give banks ample liquidity, the ECB will also hold three additional tenders for three-year loans with the last one now scheduled for December 2021, it added. REUTERS