The European Central Bank is ready to boost its pandemic bond buying, if needed, to support the single currency economy amid risks, including the adverse effect from a strong euro on inflation, ECB Executive Board member Fabio Panetta said Monday.
Last Thursday, the ECB unveiled a slew of stimulus to support the economy amid the coronavirus crisis, the main measures being an increase in the provision for asset purchases under the pandemic emergency purchase programme, or PEPP, and more favorable conditions for targeted loans to banks to boost lending to the real economy.
The bank increased the size of asset purchases under PEPP by EUR 500 billion to a total of EUR 1,850 billion. The purchase horizon was extended to at least the end of March 2022.
“The PEPP envelope can be further expanded and extended, if warranted by the inflation outlook,” Panetta said in a speech at an investment forum in Rome.
“And we stand ready to adjust all our instruments if downside risks to the outlook materialize, including those stemming from exchange rate dynamics.”
The ECB Staff projected annual inflation at 0.2 percent for this year, 1.0 percent in 2021, 1.1 percent in 2022 and 1.4 percent in 2023.
An appreciation of the euro could significantly affect euro area inflation, the policymaker added.
“There should be no doubt here: the ECB will not accept inflation settling at levels that are inconsistent with its aim,” Panetta said.
ECB President Chrisinte Lagarde’s said last week that the PEPP envelope need not be used in full if favorable financing conditions can be sustained with existing measures.
She also said that the downside risks to the euro area growth outlook have become less pronounced.
The ECB can guarantee its commitment to support the recovery: the stabilization effort should therefore continue until the economy is on a solid, durable recovery path, Panetta said.
The ECB expects GDP to decline by 2.2 percent in the fourth quarter of 2020 and to rebound only marginally in the first quarter of 2021.
The latest ECB Staff macroeconomic projections foresee annual real GDP growth at -7.3 percent this year, 3.9 percent in 2021, 4.2 percent in 2022 and 2.1 percent in 2023.
The material has been provided by InstaForex Company – www.instaforex.com