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ECB signals it’s likely to boost stimulus in December

ECB leaves rates and asset purchasing unchanged, hints at December recalibration

10/29/2020 4:07:00 PM

ECB leaves rates and asset purchasing unchanged, hints at December recalibration

The European Central Bank says it's prepared to “recalibrate” its monetary stimulus efforts in December, noting risks to the economic outlook are “clearly...

In a paragraph added to the top of Governing Council’s policy statement, the ECB said a new round of staff forecasts in December would allow a thorough reassessment of the economic outlook and the balance of risks.Based on that update, “the Governing Council will recalibrate its instruments, as appropriate, to respond to the unfolding situation and to ensure that financing conditions remain favorable to support the economic recovery and counteract the negative impact of the pandemic on the projected inflation path,” the ECB said.

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The message was clear, economists said.“This is a straightforward signal in the end. Growth forecasts will be slashed come December, prompting the ECB to provide more stimulus,” said Claus Vistesen, chief eurozone economist at Pantheon Macroeconomics, in a note.

While it’s possible that the world could look better in December, convincing the ECB that no further action is needed, that outcome is very much a long shot, he said.Europe set a series of coronavirus records this week and some countries, including France and Germany, have tightened restrictions on activities in an effort to slow the spread.

The euro EURUSD, -0.35% remained lower versus the dollar, falling 0.3% to $1.1709, while the pan-European Stoxx 600 Europe SXXP, -0.38% was down 0.4%. U.S. stock-index futures pointed to a mixed start for equities on Wall Street SPX, +0.10%, as investors also digested data on third-quarter U.S. gross domestic product and weekly jobless claims.

In the statement, the ECB said policy makers will “carefully assess the incoming information, including the dynamics of the pandemic, prospects for a rollout of vaccines and developments in the exchange rate,” the Governing Council said.The ECB, as expected, left its deposit rate at minus 0.5% and its refinancing rate at 0%, while again reaffirming plans to leave rates at present or lower levels until inflation rises to converge with the central bank’s target.

The Governing Council also said it would continue purchases under its 1.35 trillion euro pandemic emergency purchase program, or PEPP, until at least the end of June 2021 “and, in any case, until it judges that the coronavirus crisis phase is over.” The Governing Council will reinvest the principal payments from maturing securities purchased under the PEPP until at least the end of 2022, the ECB said.

It will also continue to make net purchases under its asset purchase program, or APP, at a monthly pace of 20 billion euros. Those purchases will be accompanied by purchases under the additional €120 billion temporary envelope until the end of the year.

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