ECB Holds Steady on Interest Rates, Stimulus as Economic Outlook Darkens -- Update
January 21 2021 - 8:37AM
Dow Jones News
By Tom Fairless
FRANKFURT -- The European Central Bank kept its large monetary
stimulus unchanged on Thursday, pledging to continue backstopping
the region's governments via large-scale debt purchases as a
stubborn wave of Covid-19 infections darkened the economic
outlook.
In a statement, the ECB said it would continue to buy up to 1.85
trillion euros, equivalent to $2.24 trillion, of eurozone bonds
through March 2022, as planned, meaning that it will continue to
absorb the bulk of the debt issued by eurozone countries this
year.
The ECB's bond purchases support the region's governments as
they spend freely on job-furlough and other programs aimed at
keeping businesses and jobs alive. The ECB left its key interest
rate unchanged at minus 0.5%.
Investors will now turn to ECB President Christine Lagarde's
news conference, starting at 8:30 a.m. ET, for insights into the
bank's economic outlook and hints at future policy moves.
Europe's economic outlook has darkened since the ECB's last
policy meeting in December, when Ms. Lagarde unveiled a large new
stimulus package. With infection rates still high across the
region, governments in Germany and other countries have signaled in
recent days that they will tighten or extend social restrictions.
Meanwhile, the rollout of vaccinations has been sluggish.
Analysts worry that the region's $13 trillion economy will slide
back into recession in the first three months of 2021, as
businesses and households remain cautious. Eurozone inflation has
been below zero for the past five months, through December, far
from the ECB's target of just below 2%. The euro has also staged a
rally against the dollar in recent months, hurting the
competitiveness of Europe's large exporters in crucial overseas
markets such as the U.S.
Still, "there is very little the ECB can, and would want, to do"
right now, said Carsten Brzeski, an economist at ING in Brussels.
"The short-term path of the eurozone economy will be determined by
the virus, vaccines, lockdowns, and fiscal stimulus, not additional
monetary stimulus."
That means the economic recovery will likely remain bumpy at
least until vaccinations are widespread enough to prevent new
infections, which isn't expected until the end of the year.
Europe's economy could still be boosted by a fresh U.S. fiscal
or investment package unveiled by the Biden administration, Mr.
Brzeski said.
Write to Tom Fairless at tom.fairless@wsj.com
(END) Dow Jones Newswires
January 21, 2021 08:22 ET (13:22 GMT)
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