ECB under pressure to crank up pandemic stimulus as €1.1 trillion bond buyback funds set to run out

Just weeks after unveiling a massive stimulus scheme in a late-night shock-and-awe move, the European Central Bank is under pressure to deploy even more firepower on Thursday to prop up an economy that could shrink by a tenth this year.

Printing cash at a record pace to soak up ballooning state debt during the coronavirus pandemic, the ECB is on its way to exhausting its bond purchase quota early. This has raised doubts about its commitment to help the eurozone through the worst economic crisis for decades and may encourage it to boost its support. ECB chief Christine Lagarde last week warned European leaders they risked doing “too little, too late” as the pandemic threatens a 15-percent drop in eurozone GDP this year.

Policymakers are keen to keep some pressure on the bloc’s political leadership, which has so far fumbled its fiscal response, leaving the ECB in a familiar role as the currency union’s chief crisis fighter. The dilemma suggests ECB policymakers will discuss expanding stimulus but a big move is unlikely to come until later, perhaps not until June, when the extent of the economic damage will be easier to quantify.

By the ECB’s next regular meeting on June 4, the outlines of a so far elusive political deal on a trillion euro reconstruction fund should also be apparent, making it easier for the ECB to do its part. “While its economic number-crunching left brain half may suggest to the ECB it can afford to wait, its political intuitive-thinking right brain half may encourage the ECB it should indeed wait and not take finance ministers fully off the hook at this stage,” Berenberg economist Florian Hense said.

The ECB has already deployed 125 billion euros to buy assets in just the past four weeks and is still struggling to bring down the borrowing costs of the bloc’s lowest-rated governments, suggesting its 1.1 trillion euro firepower could be exhausted mid-autumn.  But expansion of the scheme now would be more a signal than a necessity, and a few well placed words by ECB chief Christine Lagarde could prop up market confidence even without an actual decision. The ECB announces its policy decision at 1145 GMT, followed by Lagarde’s news conference at 1230 GMT. Policymakers will meet through a video conference and Lagarde will only do a virtual, online news conference.

Source: France24