The ECB increases the anti-Covid purchase plan: another 600 billion. Lagarde: “Unprecedented collapse of the economy”

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MILAN – The ECB does not disappoint the expectations of intervention on the Covid anti-emergency securities purchase plan: it will be expanded by 600 billion for a total of 1,350 billion. Also extended the horizon of the program – the so-called Pepp (pandemic emergency purchase program) – with the deadline expected to rise above the end of 2020 to reach the end of June 2021. News that make the markets change: so far weak, the European price lists go up while the spread between the BTP and the German Bund drops significantly.

At the end of an expected Council meeting in Frankfurt, the European Central Bank notes the worsening inflation outlook following the economic crisis linked to the pandemic. At the press conference, President Christine Lagarde talks about an “unprecedented collapse in the second quarter” and a “only lukewarm” recovery. The ECB’s new estimate of falling economy is 8.7% for this year, a nine and a half point revision from the latest forecasts. In 2021, a rebound of 5.2% is expected, followed by a + 3.3% the following year. Eurozone inflation estimates have also been cut, which will rise to 0.3% in 2020, 0.8% in 2021 and rise to 1.3% in 2022

In light of this shock, the ECB ensures that the extension of the Pepp program will further ease the monetary position of the Eurozone, giving support to the financing conditions of the real economy, in particular for businesses and families. Confirming the “flexible” approach to purchases, which allows Frankfurt to calibrate them on the market even beyond the proportion of the shares of the individual member countries in its capital (favoring for example Italy), the Eurotwer therefore extends its expiry and specifies that in any case it will continue to conduct the purchases until it considers the crisis phase to have ended. In short, the end-purchase date is mobile according to needs.

The analysts’ almost unanimous prediction was for an intervention of at least 500 billion. The expansion was deemed necessary also because on balance the ECB would have already fired a third of the cartridges available in less than two months of the program and it would be difficult to arrive in these conditions at the end of the year.

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In addition to maneuvering the amount to be spent on the purchase of securities (second Bloomberg, 2020 could become the record year for the purchases of securities which among all the active programs could reach 1,600 billion euros), Lagarde hit another expectation regarding the announcement of the re-investment of the money coming from the deadline of the securities purchased with Pepp: this will be done at least until the end of 2022 and in any case a portfolio management is anticipated that does not generate interference with respect to the “appropriate monetary position”. Also on this front, therefore, hands free for future adjustments. The Council “continues to be ready to adapt all its instruments, as appropriate, to ensure that inflation moves towards its target sustainably, in line with its commitment to symmetry”.As regards the other decisions, the ECB has confirmed rates at current levels and that net purchases under the
asset purchase program (App, the ‘old’ Quantitative easing) will continue at a monthly rate of 20 billion euros, together with purchases under the additional temporary allocation of 120 billion euros, until the end of the year. The Governing Council continues to expect monthly net purchases to last until just before interest rates start to rise. Instead there was no discussion – explained the governor – on the purchase of junk bonds, the securities judged “junk”, which some expected.

At the conference, Lagarde welcomed the proposal of the EU commission on the Recovery Fund: “An ambitious and coordinated orientation of fiscal policies is crucial in light of the sharp contraction of the euro area economy,” said the president, underlining as ” the interventions adopted should be as targeted and temporary as possible in response to the pandemic emergency “.





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