ECB’s Lane: ‘Our Role Is to Ensure Favourable Financing Conditions’

2 December 2020

By David Barwick – FRANKFURT (Econostream) – The European Central Bank’s role in the current situation is to ensure that financing conditions stay favourable, ECB Executive Board member Philip Lane said on Tuesday.

In a fireside chat at Reuters Global Outlook Investment Summit, a transcript of which the ECB made available on Wednesday, Lane, who is also chief economist, said the ‘very good news that we have a credible route towards vaccination’ confirms the ECB’s baseline scenario ‘and makes it less likely that we will have more severe scenarios.’ However, that does not change the current situation, dominated by the resurgence of the pandemic, he said.

The ECB’s role is to keep financing conditions favourable – ‘where they are these days’ – so as to support the recovery and counteract the shock to inflation, he said. Doing so has the additional effect of potentiating fiscal policy, he added.

Lane framed the ECB’s view of the preferability of lowering borrowing costs further versus just ensuring that they stay low for longer as ‘a signal from the central bank that … provides a lot of reassurance [and] reduces the risk of a sudden tightening of financing conditions, it should boost confidence, through that channel, in the same way as forward guidance does via interest rate policy.’

As to whether the ECB’s recalibration next week would be limited to the pandemic emergency purchase programme (PEPP) and targeted longer-term refinancing operations (TLTROs), Lane noted the measures taken with respect to collateral, swaps and repos and he said that ‘it’s important not to infer that we are only looking at two programmes.’

Still, he added, the PEPP and the TLTROs have been ‘very effective’, in view of which ‘of course we have to look closely at them in the context of next week’s meeting.’

Returning to the subject later, Lane said that given the importance of the bank credit channel for overall financing conditions, ‘[o]f course, in terms of thinking about recalibration, that discussion will also be about recalibrating the TLTROs as appropriate.’

Continued negative inflation in Europe was not grounds for greater pessimism, he said, ‘because we understand it.’ The German VAT cut will be reversed, as will some of the low prices in sectors particularly impacted by the pandemic, he said.