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(Wallace Refiners) – ECB President Christine Lagarde has been on the wires this morning. The interview was conducted on Bloomberg Television and it might have given us more clarity on the situation regarding the bank’s policy moving forward.
She said that the economic situation is fluid at the moment and there is “marked by uncertainty”. On the plus side, she noted that the “balance of risk is much more balanced in the medium term. Largarde kept things as stable as possible in the interview adding “the ECB must provide as much certainty as possible”. This is hard as much of Europe is facing a third coronavirus wave.
In regards to the ECB’s reaction to the COVID-19 pandemic, it created the pandemic emergency purchase programme (PEPP). The war chest has around €1.85 trillion and purchases various assets to ensure price stability and adequate liquidity. On the subject, Lagarde said, “PEPP purchases are sufficient in the light of present data”. She then added that the ECB can adjust PEPP as needed depending on the financial conditions. The ECB had announced previously they will reassess the PEPP program quarterly.
In regards to data Lagarde said the ECB will not be guided by short term economic moves and today the EU CPI (M/M) data was pretty stable at 0.9% vs the expected reading of 1.0% but much higher than the previous of 0.2%. Towards the end of the interview, she said that she very much hopes the EU recovery fund (€750 billion) can be launched in H2. If this is the case it would take a lot of pressure off the ECB. This has been the case for the Bank of England and the U.S. Federal Reserve in the U.S.. There was no wavering of her confidence as she also stated that investors can test the ECB as much as they want adding “We have exceptional circumstances to deal with at the moment and we have exceptional tools to use at the moment”.
The market could have wanted to hear more about yield control and maybe some comment about the rise of the U.S. 10 year yield but it never came. It seems the ECB is willing to continue to act and there is no limit to what they could do to support the economy. Now it is over to the governments to see if they can deliver on the fiscal stimulus programs to add additional support.
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