ECB’s Lagarde keeps stimulus measures in place

ECB says to keep monetary policy safeguards going as growth struggles

European Central Bank president Christine Lagarde on Thursday signalled the central bank’s generous stimulus package would remain in place to ward off further economic weakness.

Interest rates remain unchanged and there was a commitment to conducting a comprehensive review of the bank’s monetary policy strategy. This briefly drove the euro to one-month highs.

The ECB left its main deposit rate at -0.5 per cent, as expected. The bank left its asset-purchase programme unchanged at €20bn (£17bn, $22bn) a month.

The ECB said it had lowered its expectation for GDP growth in 2020 to 1.1 per cent, from an estimate of 1.2 previously. It said it did not expect inflation to reach its 2 per cent target rate even by 2022, from its current level of 1 per cent.

But Lagarde, who took over from Mario Draghi on November 1, said the risks to the growth outlook were not quite as severe as they have been.

“The risks surrounding the euro area growth outlook, related to geopolitical factors, rising protectionism and vulnerabilities in emerging markets, remain tilted to the downside, but have become somewhat less pronounced,” Lagarde said.

The euro rose briefly to its highest in a month against the dollar, which had already taken a knock from an unexpectedly dovish outlook from the US Federal Reserve the previous day.

The single European currency was last flat against the dollar at $1.112, having hit a session high earlier of $1.1544.

The Eurozone has seen growth fall to its lowest in over seven years, when the region was still mired in the sovereign debt crisis that forced international bail-outs for Ireland, Greece, Portugal and Spain’s banking sector.

The impact of the trade war between the US and China has hurt demand for the region’s exports and prompted a slowdown in overall global growth.

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Manufacturing in particular has suffered, having remained in contraction for most of this year. The broader economy barely grew in the third quarter of this year, mustering an increase of just 0.2 per cent, with export powerhouse Germany particularly hard hit.

With inflation and growth remaining subdued for now, the ECB reiterated its commitment to employing a variety of tools to protect the economy.

“In the light of the subdued inflation outlook, the Governing Council reiterated the need for monetary policy to remain highly accommodative for a prolonged period of time to support underlying inflation pressures and headline inflation developments over the medium term,” Lagarde said.

Lagarde committed to conducting a comprehensive review of the central bank’s monetary policy strategy that will begin in January and be completed by the end of next year.

It will include consultations with European parliament, civil society, academics and address technology, climate change and inequality.

“There is nothing unusual or extraordinary about having a strategic review. I actually consider for myself that it is a little bit overdue,” Lagarde said.

FURTHER READING: Investors await first signs of Christine Lagarde’s ECB policy stance

FURTHER READING: Mario Draghi bows out of ECB with rates unchanged

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