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ECB committed to stimulus with outlook `highly uncertain’, Lane says

The European Central Bank is committed to supporting the euro zone’s economy amid the coronavirus pandemic, using its massive bond purchases as its main tool, chief economist Philip Lane said on Tuesday.

Lane’s comments were likely to fuel market expectations the ECB would increase its 1.35 trillion-euro Pandemic Emergency Purchase Programme (PEPP) as soon as September, when the central bank updates its economic forecasts.

He downplayed a recent rebound in economic data, warning a full recovery would take a long time and require stimulus from the ECB as well as governments to compensate for households incomes declining and jobs being destroyed.

“While there has been some rebound in economic activity, the level of economic slack remains extraordinarily high and the outlook highly uncertain,” Lane said in a blog post. “For our part, the ECB is committed to providing the monetary stimulus needed.”

Lane’s post broke the ECB’s silence on policy matters since the ECB President Christine Lagarde’s last press conference, on July 16. Since then, survey indicators continued to point to a recovery after a record slump in the second quarter of the year.

But a surge in new coronavirus cases in the United States has helped push the euro EUR= to its highest since mid-2018 against the dollar at $1.1908, a drawback for the euro zone, which relies on exports.

This has fuelled market speculation for an increase in the PEPP, which was expanded and extended in June.

Lane said any change to the scheme, currently the main tool in the ECB’s policy arsenal, would depend on the inflation outlook.

“The overall envelope of PEPP purchases is a core determinant of the ECB’s overall monetary stance,” Lane said. “The inflation outlook plays the central role in determining the appropriate monetary stance.”
Source: Reuters (Reporting by Francesco Canepa; editing by Alison Williams, Larry King)

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