European Central Bank President Christine Lagarde on Thursday hinted at a move by the central bank in December as the risks are clearly tilted to the downside due to a resurgence in the coronavirus infections that is going to significantly hurt economic activity in the euro area in the fourth quarter of this year.
“Incoming information signals that the euro area economic recovery is losing momentum more rapidly than expected, after a strong, yet partial and uneven, rebound in economic activity over the summer months,” Lagarde said in her introductory statement during the post decision press conference.
“The rise in COVID-19 cases and the associated intensification of containment measures is weighing on activity, constituting a clear deterioration in the near-term outlook.”
Earlier on Thursday, the bank left its interest rates and stimulus measures unchanged and signaled that the policymakers will “recalibrate” measures in December when the latest set of ECB staff macroeconomic projections will be available.
Markets construed this wording as a clear signal that the central bank is planning some stimulus measure for the December 10 policy session.
During the press conference, Lagarde told reporters that there was “little doubt” that the ECB will act in December, thus adding strength to market expectations.
She said policymakers did not discuss any change to policy measures this month.
The ECB chief also said that the bank was ready to frontload Pandemic Emergency Purchase Programme (PEPP) asset purchases if needed.
“We think the most likely outcome of the December meeting is still an increase of asset purchases, via both the PSPP but also the PEPP programme, by some 500 billion euro and more, possibly even more tailor-made?support for banks and bank lending,” ING economist Carsten Brzeski said.
A new wave of coronavirus infections in Eurozone has raised the prospect of further disruption to economic activity and normal life. On Thursday, Germany and France announced lockdowns.
Eurostat is set to release the preliminary estimates for Eurozone gross domestic product on Friday. Economists are looking for a significant rebound with 9.4 percent increase in economic output.
Lagarde pointed to a visible weakening in the services sector due to the lockdown restrictions, and caution among consumers in the backdrop of uncertain outlook for employment and earnings.
She also said that low energy prices and muted underlying price pressures, due to weak demand and significant slack in labor and product markets, is dampening headline inflation.
Lagarde reconfirmed ECB’s accommodative monetary policy stance and forward guidance.
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