Commentary on Political Economy

Thursday 10 December 2020



ECB launches fresh stimulus push to boost virus-hit eurozone economy

Martin Arnold in Frankfurt

The European Central Bank has launched a fresh burst of stimulus in a bid to help the eurozone economy recover from the coronavirus pandemic, promising to buy more bonds for a longer period and providing extra cheap funding for banks.

The ECB increased the size of its pandemic emergency purchase programme (PEPP) from €1.35tn to €1.85tn and said it would push back the end of its main crisis-fighting tools from next June until March 2022, while reinvesting the proceeds of maturing securities until at least the end of 2023.

The central bank also launched a new series of auctions offering banks financing at deeply negative rates as low as minus 1 per cent, providing they maintain the flow of credit to businesses and households. These auctions will run until December 2021.

In a statement announcing the decision, the ECB said it would keep its deposit rate unchanged at minus 0.5 per cent. It will also extend its recently loosened collateral requirements until June 2022.

The ECB said: “The monetary policy measures taken today will contribute to preserving favourable financing conditions over the pandemic period, thereby supporting the flow of credit to all sectors of the economy, underpinning economic activity and safeguarding medium-term price stability.”

It said that “uncertainty remains high, including with regard to the dynamics of the pandemic and the timing of vaccine roll-outs,” adding that it continued to monitor the exchange rate after the euro rose to its highest level for more than two years against the US dollar.

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