The European Central Bank faces a test about its monetary policy in light of “Covid-19”


The European Central Bank is stepping up monetary support measures to the economy ahead of a rigorous examination to assess the risks posed by continuing restrictions imposed to combat the COVID-19 epidemic and the appreciation of the euro.
Six weeks after the last meeting of the European Central Bank last December, Florian Hensse, an economist at Bernberg Bank, says the financial institution “is still analyzing the brunt of its decision” to strengthen its monetary measures to address the crisis caused by the epidemic.
The Frankfurt-based financial institution strengthened the “pandemic emergency bond purchase program”, its main weapon that it began operating in March to maintain favorable financing conditions and encourage spending and investment, raising it to 1.850 trillion euros and extending it to March 2022. .
As for its other program to buy back assets, the quantitative easing program approved by the epidemic, it is expected to continue at a rate of 20 billion per month without specifying a period of time.
The financial institution will also grant banks new installments of low-cost loans, at a time when interest rates have fallen to their lowest levels.
Since September 2019, the European Central Bank has imposed a fee of -0.5 percent on a portion of the liquidity deposited with it, to encourage its redistribution in the form of loans.
On Thursday, the European Central Bank confirmed this arsenal of measures that allow countries, companies and families to borrow at low cost in order to encourage investment and jobs.

More risks

Observers agree that the financial institution, which has been striving to combat the crisis in the euro area since the start of the Covid-19 epidemic, is not facing a pressure situation that forces it to increase the size of its intervention.
But the economist at ING Group, Karsten Berzsky, pointed out that “the abilities of (European Central Bank President) Christine Lagarde to communicate will again be on the line” when confronting the press as of 13:30 GMT.
Hopes for a rapid economic recovery were thwarted with the second wave of the epidemic at the end of last year and the accompanying new restrictions and measures in Europe.
Bergeski said that the European Foundation will announce that the risks to economic activity “are heading to recede more than in December.”
What fuels fears is the spread of new mutated versions of the virus, the consequences of which are not yet clearly known, and the frequency of distributing the first doses of vaccines that are slower than expected.
However, the president of the European Central Bank believes that the growth forecast of 3.9% of the eurozone’s GDP will be met in 2021.
Fritzi Koller-Gabe, head of economics at the public KFV bank, commented that the European Central Bank wanted to “wait to see whether the restrictions associated with the epidemic will continue until the second quarter” and to show “to what extent they will affect the economic situation.”

Strong EUR

Frank Dixmere, director of bond management at Allianz Global Investors, said that with more than a thousand billion euros available to him to spend under the “Pandemic Emergency Bond Purchase Program”, the central bank could “buy the same amount of bonds it bought last year, while It is expected that the deficit in public budgets will be lower ».
Bond markets remain stable despite the government crises in Italy and the Netherlands.
Eric Dor, director of research at the Institute for Scientific Economic and Management, explained that this “proves the effectiveness of the European Central Bank’s policy to contain any increase in long-term interest rates” after that was the reason behind the outbreak of the debt crisis in the euro area at the turn of the millennium.
However, the rise in the euro price poses a dilemma for the European Central Bank, which is unable to push inflation to rise, aiming to reach 2% at an annual rate, which is considered appropriate to encourage economic activity.
Since the end of February, the single currency has increased by more than 10% relative to the dollar. It is imperative that the Frankfurt Foundation assess the extent to which a new increase in the euro will necessitate a more aggressive move.
A strong euro reduces the cost of imports but makes exports less competitive.
The situation is made more difficult by negative inflation rates in the euro area from August to December.
It is expected that prices will rise again in 2021 against the background of an increase in value-added tax in Germany and expectations of a return to a more normal life, but economic experts warn that the effects of this increase in prices will be limited. (AFP)


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