European Central Bank

October 29, 2020

The ECB Governing Council did not change policy settings, nor was a change expected by street analysts. The deposit rate has been -0.5% since September 2019, and the size of the PEPP program of pandemic support was lifted to 1.35 trillion euros last June and will remain at least through next June. Regular asset purchases will be maintained at a pace of 20 billion euros per month and not end until shortly before the first increase in interest rates. Euroland’s recovery has lost momentum, and inflation is currently negative. “Risks surrounding the euro area growth outlook are clearly tilted to the downside.” Updated macroeconomic forecasts due in December will guide what is done then. Risks continue to be tilted to the downside in the region because of the pandemic.

In the press conference that followed today’s Governing Council meeting, ECB President Lagarde used language about economic activity that went beyond a mere recent loss of growth momentum. The slowing rate of positive growth began in September, and November is likely to be a month of contraction in light of reimposed lockdowns affecting activities the entail social gathering. With only one month from the fourth quarter behind, Lagarde didn’t outright predict negative growth for the whole quarter but seemed suggest that improvement might be needed in December to avert a quarterly contraction. In any case, she strongly implied that monetary policy will be augmented after the December Governing Council meeting, and that as before policy modifications then are likely to entail several policy tools.

Copyright 2020, Larry Greenberg. All rights reserved. No secondary distribution without express permission.

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