ECB Economic Bulletin: Environment Warrants Ample Monetary Stimulus

30 July 2020

By David Barwick – FRANKFURT (EconoStream) – The European Central Bank on Thursday confirmed the need for substantial monetary accommodation to support the economic recovery and price stability.

In its latest Economic Bulletin, the ECB reiterated its forward guidance and its willingness to adjust its stance as warranted.

Despite a May-to-June uptick on less weak energy prices, annual Eurozone HICP will decline again over the next months before picking up early next year, the ECB said. Upward supply-side price pressures won’t fully offset downward demand-side pressure over the medium term, it said. Market-based indicators of long-term inflation expectations are subdued.

The ECB confirmed that economic activity in May and June had ‘improved significantly’ on the back of consumption and especially industrial output, though it noted the uneven nature of the upturn by sector and geography.

Consumer spending is being held back by weak job markets and precautionary saving, the ECB said, while investment is subdued owing to the weak outlook and high uncertainty. Foreign demand is also weak, it said.

Supported by fiscal and monetary measures, credit standards for loans to firms remain favourable, the ECB said, and ‘very favourable lending rates, which point to an ongoing robust transmission of monetary policy measures, are supporting euro area economic growth.’

The current environment requires ‘ample monetary stimulus’ for the sake of the recovery and of price stability, which is why the Council ‘decided to reconfirm its very accommodative monetary policy stance’, according to the update.

‘The Governing Council will keep the key ECB interest rates unchanged’, the Bulletin continued. ‘They are expected to remain at their present or lower levels until the inflation outlook has robustly converged to a level sufficiently close to, but below, 2% within the projection horizon, and such convergence has been consistently reflected in underlying inflation dynamics.’

The ECB restated its commitment to ‘doing everything necessary within its mandate’ and in particular ‘ensuring that monetary policy is transmitted to all parts of the economy and to all jurisdictions’. The Council is thus ‘ready to adjust all of its instruments, as appropriate, to ensure that inflation moves towards its aim in a sustained manner, in line with its commitment to symmetry.’