ECB makes case for 'free hand' to fight pandemic damage: accounts
FRANKFURT (Reuters) – European Central Bank rate-setters argued for a “free hand” to fight the economic damage caused by the coronavirus pandemic and emphasized their readiness to add to stimulus, the accounts of their September meeting showed on Thursday.
Although the bank kept policy steady at the meeting, the accounts indicate oversized concerns about the outlook with a long list of risk from a strong euro and higher infection rates to the U.S. election all weighing on growth.
“In the prevailing environment of high uncertainty, keeping a steady hand with respect to monetary policy was seen as most appropriate,” the ECB said in its accounts of the Sept 9-10 meeting.
“At the same time, the case was made for keeping a ‘free hand’ in view of the elevated uncertainty, underpinning the need to carefully assess all incoming information, including the euro exchange rate, and to maintain flexibility in taking appropriate policy action if and when needed,” the ECB added.
While ECB President Christine Lagarde took a benign view on growth at a news conference following the meeting and even raised some of the bank’s forecasts, the accounts suggest greater worries than the initial public message suggested.
“The underlying dynamics of the pandemic, developments in negotiations on the post-transition Brexit arrangement, the outcome of the US presidential election and decisions on fiscal plans at the individual country level as well as at the euro area level had to be closely monitored,” the ECB added.
Economists expect the ECB to expand and extend its 1.35 trillion euro Pandemic Emergency Purchase Programme as soon as December, although no policy action at the October meeting is likely.
While some policymakers argued for reducing these purchases for now given relatively calm markets, policymakers agreed that the entire purchase quota is likely to be used us by the time the scheme ends.
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