ECB’s Lagarde: Policymakers Must Bridge Gap Until Vaccine Is Available

19 November 2020

By David Barwick – FRANKFURT (EconoStream) – European Central Bank President Christine Lagarde said Thursday that policymakers’ main challenge is to buy time until the pandemic can be medically resolved.

In her introductory statement at a virtual hearing of the Committee on Economic and Monetary Affairs of the European Parliament, Lagarde reiterated that the ECB’s recalibration of its policy stance next month would probably rely chiefly on its pandemic emergency purchase programme (PEPP) and targeted longer-term refinancing operations (TLTROs).

‘The key challenge for policymakers will be to bridge the gap until vaccination is well advanced and the recovery can build its own momentum’, she said.

For monetary policy, she said, that means ensuring ‘favourable financing conditions for all sectors and jurisdictions across the euro area’, for which ‘what matters is not only the level of financing conditions but the duration of policy support, too.’

Although ‘all options are on the table’ for the coming recalibration, the PEPP and the TLTROs ‘have proven their effectiveness in the current environment and can be dynamically adjusted to react to how the pandemic evolves’, she said. ‘They are therefore likely to remain the main tools for adjusting our monetary policy.’

Reminding of the ECB’s forceful, timely and successful policy reaction to the initial outbreak of the pandemic, Lagarde vowed that the Council would ‘address the current phase of the crisis with the same approach and determination.’

Progress on a vaccine is “encouraging”, she said, but ‘[o]verall, the euro area economy is expected to be severely affected by the fallout from the rapid increase in infections and the reinstatement of containment measures, posing a clear downside risk to the near-term economic outlook.’

Consumers would likely remain careful and corporate investment subdued in the context of uncertainty about pandemic-related developments and in particular the availability of a vaccine, she said. Inflation would probably stay negative until early next year, she said.