ECB'S Panetta: We’ll Do Everything We Have To, Within Our Mandate

16 March, 2020

By David Barwick - FRANKFURT (EconoStream) – The European Central Bank will counter the current crisis with whatever actions within its mandate it deems necessary, including a further deposit rate cut, ECB Executive Board member Fabio Panetta said Sunday. In an interview with Italian daily Corriere della Sera, an English-language version of which was provided by the ECB, Panetta was challenged on the outcome of the ECB Governing Council’s monetary policy deliberations last Thursday. Panetta defended the ECB’s decisions as an example of “strong action” demonstrating that monetary authorities are “ready and able to play our part.” If needed, the ECB will adopt further measures, he reminded. “Facts are what count right now, and we will do everything we have to, within our mandate,” he added. Although the ECB has “so far” not further reduced the deposit facility rate, “further cuts would be possible if warranted by the economic outlook,” he said. The interest rate on the ECB’s deposit facility currently stands at an all-time low of -0.50%, where it has been since a 10-basis-point cut last September. Still, Panetta was clear that mitigating the economic fallout from the coronavirus pandemic is above all the responsibility of governments, which are the actors able to take the appropriate measures to limit the impact and in particular to help firms, he said. Government action “will reinforce the effects of the measures put in place by the ECB” to support lending to the real economy, he said. This would be to the benefit, among others, of the small and medium-sized enterprises so critical for Italy’s economy, he noted. The ECB’s 120-billion-euro expansion of its asset purchase programme, he said, would help alleviate sovereign bond market tensions. The 360 billion euros in total to be devoted this year to asset buys could even be increased if warranted, he said. “The turbulence seen in the Italian government bond market in recent days is undesirable and needs to be allayed,” he remarked pointedly. “Large, unwarranted increases in spreads, caused by the grave health crisis … will be addressed decisively,” he then added in an evident attempt to further attenuate ECB President Christine Lagarde’s comment last week that the central bank was “not here to close spreads.” Panetta emphasized the ECB’s ability to apply last week’s decisions with a high degree of flexibility with respect to the pace and the composition of its asset purchases. This, he affirmed, gives authorities “the possibility to focus our efforts on asset classes and countries that come under pressure.” The economic shock associated with the coronavirus pandemic could exceed that of 2008 if not properly handled, Panetta warned, observing that the markets had recently tumbled more quickly than following the collapse of Lehman Brothers. Growth could be cut by “a few percentage points, for Italy and other European countries,” he said, urging again that the relevant authorities come up with an economic recovery plan. Panetta voiced confidence in the common currency’s ability to withstand the turbulence: “I am not in any doubt about the strength of the euro,” he said.