ECB keeps its gunpowder dry in corona crisis

The European Central Bank is not taking any additional measures to control the consequences of the corona crisis. The already extremely low interest rates remain unchanged, and the buy-back programme set up for the pandemic of EUR 1350 billion is not being further expanded. ECB President Lagarde did, however, let it be known that he was keeping a close eye on developments, including the exchange rate of the euro.

The ECB is under pressure to take additional measures, because inflation in Europe has become negative. In August it dropped to -0.2 percent, a sign of economic weakness. Furthermore, the euro became ten percent more expensive against the dollar during the pandemic. This makes European products more expensive for markets outside Europe, which can further harm employment.

Formally, the ECB has only one goal, and that is price stability. An inflation rate of just under 2% is seen as ideal, but that goal has not been achieved for years. Still, Lagarde is not frightened by the negative inflation in August. After all, the ECB is mainly looking at the expected inflation, which has even been revised upwards for the coming year.

The European economy fell by 11.8 percent in the second quarter of this year, relative to one quarter previously. And although there has been a substantial improvement since then, the ECB has had to revise its growth forecasts downwards again. Further improvement depends on whether the euro countries manage to bring the pandemic under control, Lagarde said.

Meanwhile, the ECB will continue to buy up government bonds and other debt en masse. The pandemic buy-back programme of currently around 15 to 20 billion euros per month will continue at least until mid-2021 and “as long as the critical phase in the corona crisis is not over”.