European Central Bank chief Christine Lagarde warned yesterday that the pandemic still poses \u201cserious risks\u201d to the eurozone economy as concerns grow about new virus variants and sluggish vaccination campaigns.
\nThe Frankfurt institution\u2019s governing council held back from tweaking its ultra-loose monetary policy at its first meeting of the year, having already topped up up support in December.
\nLagarde stressed that \u201cample monetary stimulus\u201d remained essential to steer the 19-nation currency club through the Covid-19 upheaval, and that the ECB stood ready to do more as needed.
\n\u201cThe pandemic continues to pose serious risks to public health and to the euro area and global economies,\u201d Lagarde told an online press conference.
\nThe start of mass vaccination drives in the European Union was \u201can important milestone\u201d, she said, but the rollout has got off to a bumpy start in many nations.
\nThe emergence of more contagious virus variants, first discovered in Britain and South Africa, has added to nervousness at a time when many countries are already struggling to bring down infection numbers.
\nEurope\u2019s top economy Germany this week extended its partial lockdown until February 14, and Chancellor Angela Merkel has not ruled out border checks to slow the spread of the new strains.
\nFrance and Spain have tightened their evening curfews, while non-essential shops and leisure facilities are closed across much of the continent.
\nThe latest virus setbacks \u201care disrupting economic activity,\u201d Lagarde said, noting that the services sector was hit especially hard.
\n\u201cThe intensification of pandemic poses some downside risks to the short-term economic outlook,\u201d she added.
\nThe ECB in December forecast 3.9% growth for 2021, after an estimated contraction of 7.3% in 2020.
\nLagarde said the ECB\u2019s forecasts \u201cremain valid\u201d for now, as they took into account lockdowns persisting through the first quarter coupled with a gradual start to vaccinations.
\nThe former French finance minister also reiterated her plea for European governments to support the ECB\u2019s efforts through fiscal policy.
\nShe urged European Union members to speed up the ratification of a recently agreed \u20ac750bn recovery fund, saying it had a \u201ckey role\u201d to play in financing the region\u2019s bounce-back.
\nUnder Lagarde, the ECB took unprecedented steps last year to cushion the impact of Covid-19 on the euro economy.
\nIts biggest weapon is a pandemic emergency bond-buying scheme, known as PEPP, that was in December topped up by \u20ac500bn to reach a total envelope of \u20ac1.85tn.
\nThe scheme was also extended to March 2022.
\nThe bank has also offered ultra-cheap bank loans and held interest rates at historic lows.
\nThe goal of the measures is to keep borrowing costs low to encourage spending and investment in the 19-nation currency club, in a bid to boost growth and inflation.
\nBut eurozone inflation has stayed stubbornly low for years and even turned negative in 2020.
\nBy the ECB\u2019s own estimates, price growth will gradually inch up to 1.4% by 2023, still far off the bank\u2019s target of just under 2%.
\nIn December, inflation stood at minus 0.3%.
\nAnalysts say inflation could bound higher later this year, powered by pent-up consumer demand once lockdowns start easing.
\nBut any boost is expected to be short-lived, they caution.
\nLagarde agreed that inflation was \u201clikely to increase in the coming months\u201d, partly also due to the end of a temporary sales tax cut in Germany from January.
\nBut she said \u201cunderlying price pressures are expected to remain subdued due to low demand in tourism and travel sectors, and the appreciation of the euro against the dollar.\u201d
\nThe euro has risen by more than 10% against the greenback since late February, complicating ECB efforts to push up inflation.
\nA stronger euro makes imports cheaper, keeping a lid on consumer prices, while exports become less competitive, hurting growth prospects.
\nLagarde said the governing council was monitoring exchange rates \u201cvery carefully\u201d. For now, the ECB \u201cremains happy at the sidelines and has kept all options open,\u201d said ING bank economist Carsten Brzeski.
\n\u201cIn the absence of any severe economic accident, the ECB is likely to stick to this line at least until late summer,\u201d he added.<\/p>\n","protected":false},"excerpt":{"rendered":"
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