ECB’s Lagarde: Prepared to Expand and Modify Asset Buys if Needed

16 April 2020

16th April 2020 By David Barwick - FRANKFURT (EconoStream) – The European Central Bank is prepared to buy a larger and different mix of assets if the situation warrants it, ECB President Christine Lagarde said Thursday. In a statement at a gathering of the International Monetary and Financial Committee that took place during the IMF Spring meetings, held virtually, Lagarde said the economic fallout from the pandemic leaves the medium-term inflation outlook subject to much uncertainty, according to a text made available by the ECB. She reiterated the Governing Council’s commitment to rely on “all options” within the scope of its mandate to get the euro area through the crisis. The Council “is fully prepared to increase the size of its asset purchase programmes and adjust their composition, by as much as necessary and for as long as needed,” she said. Amid a looming contraction in economic output and “rapidly deteriorating labour markets,” predicting economic developments in Europe through the recession is “extremely difficult,” she said. In particular, “the implications of the coronavirus crisis for inflation over the medium term are surrounded by high uncertainty.” Banks in the region are in better shape than they were ten years ago, while supervisory and macroprudential measures taken in recent weeks should shore them up, she said. Still, the ECB is keeping a close eye on the sector “and assessing the need for additional steps, including the further release of buffers or measures to support their usability,” she said. Non-bank financial institutions are also being monitored, she said, noting the beneficial effect here of recent ECB actions such as the inclusion of non-financial commercial paper in ECB private sector asset purchases. Lagarde said the ECB supported the IMF’s adjustments to its emergency lending toolkit and the creation of a short-term liquidity line for fundamentally strong economies. “We are also open to exploring a possible new special drawing rights (SDR) allocation for all IMF members,” she said. The ECB, which already agreed to provide euro liquidity to other central banks in the European Union, “is assessing further requests for euro-providing swap lines in line with its mandate,” she said.