European Central Bank (ECB) news

Reuters reports that ECB policymaker Yannis Stournaras said that the European Central Bank must keep its money taps fully open, as the euro zone economy is still in the throes of the coronavirus pandemic despite progress in vaccination campaigns.

ECB rate-setters will review the pace of emergency bond purchases at their June 10 meeting against an improved economic backdrop. Growth and inoculation rates are rising in the bloc as COVID-19 cases fall.

However, Stournaras said the recovery remained fragile and, with no evidence to point to an era of high inflation in the foreseeable future, it was too early for the ECB to slow down emergency bond purchases.

With inflation forecast to stay below the ECB's 2% target for years to come, Stournaras supported continuing the ECB's 1.85 trillion euro Pandemic Emergency Purchase Programme (PEPP) at its current clip.

"I don't see any reason to make any change (to the pace of PEPP) at the moment," he said.

Stournaras said the time for giving up PEPP, which is set to run at least until March 2022, hadn't come yet.

"I don't think the time is right to do this shift yet," he said. "Of course, at some point in the future this will occur, there's no doubt about that. We have to think about a smooth transition from PEPP to APP."

• German economy robust enough to deal with a longer weaker phase

• German inflation to be slightly stronger than expected this year

• Extended lockdowns into Q2 would only delay the recovery process

• ECB can flexibly adjust pace of PEPP purchases if needed

• We see spillovers from rising US borrowing costs

• Must very carefully analyse rise in bond yields

• Financing conditions are still favourable

• Assumptions of underlying forecasts are still correct

• Forecasts were based on lockdown measures until end of Q1

• Some of the uncertainty has been cleared, such as Brexit, US election, vaccine

• Start of the year is more positive than some would argue

• We are monitoring exchange rate movements very carefully, but we do not target it

• ECB will be 'extremely attentive' to exchange rate impact on prices

Reuters reports that ECB policymaker Francois Villeroy de Galhau said that the amount of monetary stimulus is not the only question facing the European Central Bank and it also needs to look at how it is transmitted to the economy.

"In the face of prolonged uncertainty, out first objective must be keeping very favourable financing conditions as long as necessary," Villeroy said.

"To this end, the recalibration of instruments must focus in particular not only on the level of monetary support, but also on the duration, flexibility and efficient targeting, in short, the quality of monetary policy transmission," he added.

Reuters reports that ECB President Christine Lagarde said that the European Central Bank could "neither go bankrupt nor run out of money" even if it were to suffer losses on the multi-trillion-euro pile of bonds it has bought under its stimulus programmes.

"As the sole issuer of euro-denominated central bank money, the Eurosystem will always be able to generate additional liquidity as needed," Lagarde said.

"So, by the definition, it will neither go bankrupt nor run out of money. In addition to that, any financial losses, should they occur, would not impair our ability to seek and maintain price stability.

Reuters reports that European Central Bank policymaker Pablo Hernandez de Cos said that it will take time before any COVID-19 vaccine has a positive impact on the economy. 

New restrictions imposed in euro zone countries to curb the second wave of the pandemic mean that the ECB's upcoming macroeconomic projections in December would be most likely revised downwards, de Cos added.

"The vaccine is very positive news, regarding investor confidence, consumers confidence and economic activity. But I would like to be cautious. In the short term, restrictions will continue across Europe," de Cos said.

The good news on the vaccine "will take time to translate into economic activity," he added.

Reuters reports that the size of the European Central Bank’s bond purchases will depend on the inflation outlook, the ECB’s chief economist Philip Lane said on Tuesday, warning once again about “highly uncertain” economic prospects for the euro zone.

“The overall envelope of PEPP (Pandemic Emergency Purchase Programme) purchases is a core determinant of the ECB’s overall monetary stance,” Lane said in a blog post.

“In line with the ECB’s price stability mandate, the inflation outlook plays the central role in determining the appropriate monetary stance.”

• We should envisage support continuing beyond 2020

• We really have to maintain attractive conditions until the middle of next year at least

• Economic recovery will be sequential

• The recovery will be a complicated matter, there is a lot of uncertainty

• Savings grew substantially over the past two months

• It will take a while before that translates back into investments, spending

• Central banks have responded to the crisis in a 'massive' way

• This crisis is worse than the 2008-09 financial crisis

• The ECB mandate is the same i.e. focus on price stability

• We have to use instruments that provide the most proportionate response

• Needed to ensure that there was sufficient liquidity

• Also needed to make sure that banks could continue lending to the economy

• For once, monetary policy and fiscal policy worked hand in hand

Reuters reports that the European Central Bank's top supervisor urged banks on Friday to eat into their capital buffers and continue lending during the coronavirus crisis, insisting the ECB would be slow in raising requirements again.

"I hear sometimes that banks might not be willing to use the buffers because of concerns that the ECB would... ask for a fast replenishment of the buffers," Andrea Enria told a virtual meeting of bankers.

"I want to reassure all parties that we will strive to put in place a well-designed and credible path to normality," he added.

Reuters reports that European Central Bank Governing Council member Ignazio Visco said on Friday policy makers had to act to head off deflationary risks brought about by the sudden halt to economic activity during the coronavirus crisis.

Visco, who is also governor of the Bank of Italy, said disinflationary pressures could be strong and persistent, threatening economies where already high levels of public debt are growing massively during the crisis.

Presenting the Bank of Italy's annual report, he said the ECB was ready to use all the instruments available to ensure that all sectors of the economy could benefit from accommodative financing conditions.

"Steps must be taken to counter the significant risk of low inflation and the marked fall in economic activity from translating into a permanent reduction in expected inflation or into the possible resurfacing of the threat of deflation," he said.

"Also as a result of the high levels of public and private debt in the euro area as a whole, this could trigger a dangerous spiral between the fall in prices and that in aggregate demand."

CNBC reports that the vice president of the European Central Bank (ECB) has backed the unprecedented stimulus packages launched in the region, saying there were no alternatives for lawmakers.

Governments from euro area countries have passed major stimulus efforts in a bid to soften the impact of the coronavirus crisis and keep people in work. Fiscal deficits are expected to widen, debt piles will climb and the financial repercussions could be felt for generations.

However, Luis de Guindos, the vice president of the euro zone’s central bank, said the issue of lofty debt levels needs to be put into perceptive.

“At the end of the pandemic for sure that we will have higher public debt ratio. But the alternative of doing nothing is much worse,” he told CNBC’s Annette Weisbach when asked specifically about Italy.

“It would be much worse in terms of the crisis. And it would be much worse in terms of the recovery phase,” he added. 

The ECB vice chief said that concerns over public finances in the medium term will have to be addressed. But for now, he called for “powerful and strong” fiscal responses at both the national and pan-European level.

• It is very hard to forecast how badly the economy has been affected

• Economic contraction now seen somewhere between 'medium' and 'severe' scenario

• ECB had to resort to exceptional measures to make sure there is plenty of liquidity

• ECB primary objective is to ensure price stability