ECB’s Lagarde: To Use ECB Policy to Benefit of any Country in Need

30 April, 2020

By David Barwick – FRANKFURT (EconoStream) – The European Central Bank will deploy its policy tools to the benefit of any country in need, ECB President Christine Lagarde said Thursday.

Speaking at the press conference following the ECB’s latest monetary policy decision, Lagarde, according to a transcript provided by the ECB, suggested that an activation of Outright Monetary Transactions (OMT) would not be preferable to flexible use of the Pandemic Emergency Purchase Programme (PEPP).

Asked whether the ECB was doing enough for Italy, Lagarde responded that “we will not tolerate any risk of fragmentation. We will want to make sure that there is plenty of liquidity, we will want to make sure that credit flows to the economy, that our monetary policy stance and transmission are effective. We will do so in whichever country needs to benefit from our determinations.”

With regard to a possible expansion of the scope of the PEPP, whose flexibility she lauded, Lagarde left no doubt that the ECB was willing to stretch self-imposed constraints as needed.

“We believe that we have to make full use, and continue to make full use, of that flexibility,” she said. “That applies across classes of assets. It applies across jurisdictions. It applies across time. So we will use that flexibility full fledge.”

That included size, composition and duration, she added.

Although the Pandemic Emergency Longer-Term Refinancing Operations (PELTROs) announced by the ECB on Thursday will feature an interest rate 25 basis points below the main refinancing operations rate, presently at 0%, there was no need for the Governing Council to reduce outright official borrowing costs, Lagarde said.

“[W]e look at the bulk of what we've done since early March and we believe that between the massive liquidity facility, between the revised and much improved TLTROs, with the enlarged pool of collateral from which banks can draw, combined with an interest rate that itself was already at low level, we have the combination as a package to actually address the current circumstances,” she said. “It does show in the results.”

Asked whether the ECB would allow non-banks to benefit from PELTROs, Lagarde said that the Council had not discussed the idea, but “[t]here is such a threat to the economic fabrics of our societies that we have to be open-minded and look at all possibilities. I am not closing off anything in that respect…”

Whereas OMT was devised to preserve the singleness of European monetary policy in individual countries needing the support, this is not the present situation because the pandemic and its economic fallout constitute, a global shock, she said, making the PEPP rather than OMT the “best tool that we have in our toolbox.”

Still, she added, “OMT remains part of the toolbox and we are not suggesting that we would eliminate OMT…”