Lagarde Says ECB Will Do ‘Everything Necessary’ To Ease Covid-19 Shock

The European Central Bank is ready to do whatever is necessary to support the euro area through the economic shock created by the spread of the coronavirus, or Covid-19, pandemic, ECB President Christine Lagarde said Thursday.

“The Governing Council is committed to doing everything necessary within its mandate to help the euro area through this crisis,” Lagarde said in a statement at the meeting of the International Monetary and Financial Committee.

“It is fully prepared to increase the size of its asset purchase programmes and adjust their composition, by as much as necessary and for as long as needed.”

ECB policymakers will also “explore all options and all contingencies” to support the Eurozone economy through the Covid-19 shock, she added.

Citing recent data, Lagarde said the Euro area is facing a “large contraction in output” and “rapidly deteriorating labor markets“.

Earlier this week, the International Monetary Fund projected that Eurozone is set to witness a GDP decline of 7.5 percent this year. In 2021, the euro area economy is forecast to grow 4.7 percent.

Italy, Spain and France are among the worst hit euro area member states. The lender forecast a GDP decline of 9.1 percent this year for Italy, the worst outcome in the developed world.

“Uncertainty is sharply elevated and will remain high, making it extremely difficult to predict the likely extent and duration of the imminent recession and subsequent recovery,” the ECB chief said.

The central bank expects headline inflation to fall further in the near term. However, the impact of the coronavirus crisis for inflation are surrounded by high uncertainty, Lagarde added.

The stimulus already announced by the ECB include a sizeable EUR 1.1 trillion increase in the volume of asset purchases under the existing Asset Purchase Programme and a newly created Pandemic Emergency Purchase Programme, or PEPP.

The central bank has also offered longer term loans at cheaper rates, mainly targeting small and medium enterprises, and also eased its collateral rules to ensure ample liquidity in the financial system during this period of crisis.

Further, the ECB strengthened its swap line arrangements with several other central banks to boost euro liquidity.

ECB’s stimulus measures have “an important stabilising impact” on the euro area sovereign yield curve,” ECB Executive Board member Isabel Schnabel said in a speech on Thursday.

“In a matter of days, the pandemic reversed the previous easing in financial conditions that was consistent with a return of inflation to our medium-term aim,” she said.

“This threatened to unleash a perilous macro-financial feedback loop that, if left unaddressed, would have put at risk the ECB’s price stability mandate and endangered financial stability more broadly.”

The stimulus measures helped stabilize broad funding conditions in the euro area, improve market liquidity and reduce volatility, Schnabel noted.

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