The European Central Bank left policy unchanged on Thursday, resisting pressure to unveil more stimulus amid a new wave of the pandemic, but provided the clearest hint yet of fresh easing at its next meeting in December.
Following are highlights of ECB President Christine Lagarde’s comments at a news conference after the policy meeting.
FISCAL RESPONSE TO PANDEMIC
“The European Council .. is clearly going in the direction of jointly addressing the crisis, jointly borrowing and contributing, particularly with the grant element of the package to the fiscal effort that is necessary in the present situation.
“So I very much hope that continues into ‘21, given what we are facing. I wouldn’t be honestly very surprised if there was more fiscal support undertaken at the national levels, given the situation and the worsening of the conditions that we’re seeing at the moment.”
“In the current environment of risks clearly tilted to the downside, the Governing Council will carefully assess the incoming information, including the dynamics of the pandemic, prospects for a rollout of vaccines and developments in the exchange rate.”
“We inserted (vaccine reference in statement) because clearly in an outlook that is fairly dark, and given what was asserted yesterday by the European Commission, this is probably in terms of expectations and into 2021; because we don’t refer to vaccination in and of itself, we refer to the rolling out of it that hopefully will have an impact and will give hope to those that are facing containment and are facing a rather gloomy outcome.”
“Our focus is twofold: We need to make sure that credit continues flowing in the economy, we need to make sure that the financing conditions remain favourable in order to support the recovery. And we need to make sure that there is ample liquidity around in order to respond to any kind of shocks, any kind of developments that we will see in the weeks and in the months to come.
“We will use the flexibility of everything that we have and we will recalibrate using the solid data that we will have.”
FREQUENCY OF GOVERNING COUNCIL MEETINGS
Asked if ECB might hold meetings more frequently during the crisis, Lagarde said:
“The benefit of working remotely is that we easily meet using whatever of those devices … We can be together on very short notice to deal with multiple issues and there have been quite a few occasions, including recently, where we have addressed specific issues …
“If and when it is needed, it is very easy … If we have to meet on short notice, we will do so. We stand ready for that.”
“The number for the third quarter (GDP) will be coming out tomorrow and might surprise on the upside. On the other hand we are pretty confident that our number for the fourth quarter will be on the downside.
“Clearly we expect the month of November to be very negative and it will reflect the slow process that our economies are going to go under and the lost momentum, the slower momentum, we have been observing since September.
“When you look at all numbers – whether it is in the service industry, consumer confidence, PMI orders, the PMI employment.
“The slowdown and reduced momentum has been apparent since September.
“It will clearly be aggravated in November given the measures that are being taken.
“Most likely our fourth quarter number will be to the downside. Will it be negative? we don’t know at this point in time what the outcome of the current containment measures in November will be and what kind of bounceback we will observe.
“It is very difficult to predict how December will or will not offset the numbers for November but we don’t expect good numbers for November obviously.”
NEED FOR MORE ACTION
“The full Governing Council was in total agreement to analyse the current economic situation and to recognise and acknowledge the fact that risks are clearly, clearly tilted to the downside.
“We all acknowledge the role and the importance as a driving force of the pandemic and the increase of contagion, as well as the impact that containment measures will have on the economy.
“It is with that recognition and acknowledgement that we agreed, all of us, that it was necessary to take action and therefore to recalibrate our instruments at our next Governing Council meeting.
“So the teams, committees, staff members are already at work … and this recalibration exercise will touch on all our instruments — it is not going to be one or other.
“We will be looking at all our instruments, how they interact together, what will be the optimal outcome and what will be the mix that will best address the situation.”
FIGHTING THE PANDEMIC
“We are going to use all the instruments that we have now with the entire flexibility that we have to address the situation, and to address any development of the situation.
“We have responded very promptly, very appropriately – very heavily some would say – to the first wave that hit the euro area economies. We will do it again for the second wave, but don’t assume that it will be one instrument, we’re going to look at all of them, the combination of them all to arrive at the best possible outcome.”
MUTED PRICE PRESSURES
“Headline inflation is being dampened by low energy prices and muted underlying price pressures in the context of weak demand and significant slack in labour and products markets.”
“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.”
“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.”
DRAG ON INVESTMENT
“Weaker balance sheets and increased uncertainty about the economic outlook are weighing on business investment.”
“Consumers are cautious in the light of the pandemic and its ramifications for employment and earnings.”
“While activity in the manufacturing sector has continued to recover, activity in the services sector has been slowing visibly.”