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.
Vaccine news starts to reduce the weight of uncertainty
Today's GDP data was in line with where we thought it would be
We've had a strong recovery, but there is still a huge gap
The recovery has been very uneven
Don't have a date in mind for negative rates review outcome
We have talked about yield curve control, but it's something I don't see a great need for at the moment
Great deal of work to be done with banks in deciding if negative rates are doable
We will have more information on Brexit in December meeting
Not yet at a point where we can reach a conclusion on negative rates
There is a risk that negative rates end up being counterproductive
Outlook for monetary policy is skewed towards adding further stimulus
QE is probably less potent now than in March
Risks are skewed towards even larger job losses
Difficult to see a scenario where all furlough workers are reintegrated seamlessly
The speed of the recovery is likely to be slower while the virus remains a concern
UK recovery in Q3 is a little bit ahead of expectations
The economy can be viewed as glass half-full or half-empty
Labour demand is weak, unemployment is higher than reported number
Investment is also very weak, but housing market is strong
We will do everything we can to support the UK economy
We have looked very hard at scope to cut rates further
That includes negative interest rates
Concluded that negative rates should be in the toolbox
We do not intend to take any action to tighten policy until there is very clear evidence of significant progress to achieve 2% inflation target sustainably
Like the Fed, BOE is flexible in returning inflation back to its target
The economy’s faster-than-expected rebound in the last few months has reflected a benign window in which large fiscal support has coincided with the relaxation of lockdown measures and low infection rates. This window may now be closing.
Unemployment is likely to rise significantly in coming quarters as the furlough scheme winds down and workforce participation recovers.
The strength in money growth is an indication of the exceptional level of fiscal and monetary policy support in recent months. It is unlikely to translate into excess spending given the economic impact from Covid-19.
Looking forward, I suspect that risks lie on the side of a slower recovery over the next year or two and a longer period of excess supply than the forecast in the August MPR.
If these risks develop, then some further monetary loosening may be needed in order to support the economy and prevent a persistent undershoot of the 2% inflation target.
Yields in the gilt market are extraordinarily low
Trends over many years have pushed down rates
We are not actively planning for negative rates
We are using tried and test policies such as QE
Important to stress that negative rates are now in the toolbox
Financial structure is a key conditionality for negative rates
BOE can support the transition by keeping rates low
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
Massive programme of asset purchases has been the right thing to do.
Central bank independence should not be called into question by COVID-19.
Financial system mustn’t become reliant on these extraordinary levels of central bank reserves.
Current scale of central bank reserves mustn’t become a permanent feature.
Elevated balance sheets could limit the room for manoeuvre in future emergencies.
As economies recover, it’s likely that some of the exceptional monetary stimulus will need to be withdrawn, including by reducing reserves.
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.
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