PEPP to bring EU closer to pre-crisis inflation path
The European Central Bank is expanding its massive hundreds of billions of euros in money printing in an effort to bolster the economy as a new wave of coronavirus sweeps the region and threatened to disrupt an already fragile recovery.
The central bank said in a statement that it will increase asset purchases by € 500 billion ($ 605 billion), bringing the total stimulus program to € 1.85 trillion ($ 2.24 trillion). The European regulator also plans to extend bond purchases until at least the end of March 2022 and provide banks with more subsidized loans to stimulate lending..
«Monetary policy measures taken today will help maintain favorable financing conditions during the pandemic, thereby supporting the flow of loans to all sectors of the economy, supporting economic activity and ensuring medium-term price stability.», – said in a statement.
Markets largely expected the central bank to increase bond purchases, promising back in October «recalibrate your instruments», since the renewal of multiple of COVID-19 cases on the continent has led to further paralysis of economic activity at the national level.
ECB kept interest rates on its main refinancing operations, margin lending and deposit line at 0.00%, 0.25% and -0.50%, respectively.
ECB stated that «uncertainty remains high» regarding the evolution of the pandemic and the timing of vaccine distribution and is therefore willing to adjust his instruments to bring inflation closer to the 2% target.
This is the second time that the ECB has expanded its emergency asset repurchase program, dubbed the Pandemic emergency purchase program (PEPP), which he rolled out in the spring when the coronavirus swept Europe and governments imposed tight restrictions on economic activity. Six months ago in June, the ECB increased the size of the program by 600 billion euros ($ 726 billion).
Despite record growth in the third quarter, the EU economy is still 4.2% smaller than its September 2019 level, according to the statistical agency Eurostat. Europe is now grappling with another surge in coronavirus cases, which has caused new restrictions in large economies such as Germany, France and Italy. GDP is expected to contract again in the fourth quarter.
The International Monetary Fund expects Europe’s economy to contract 7% in 2020, which will be sharper than the United States but less severe than the UK.