ECB chief says arsenal of economic stimulus on standby amid upsurge of coronavirus cases in Europe

President of the European Central Bank Christine Lagarde holds a press conference during the informal meeting of European Union ministers for economic and financial affairs on September 11, 2020 in Berlin, Germany.
Hayoung Jeon – Pool | Getty Images

LONDON — European Central Bank President Christine Lagarde on Thursday said her organization would be prepared to impose further emergency measures to tackle the economic fallout from the coronavirus crisis, with the region confronting a rapid upsurge of Covid-19 infections.

“We are still in the long grass for the moment and there is still a lot of work to be done, especially as from this corner of the world in Europe, we are seeing recurrences of contagion,” Lagarde told CNBC’s Geoff Cutmore during an IMF World Bank panel on Thursday.

“We are seeing maybe a second wave on the horizon or hitting the coastline of Europe and we better make sure that all the arsenal that we have available is actually dealing with the situation by adopting the right policies,” Lagarde said, adding that an increase in fiscal spending was “being considered” by many member states as they present their budgets.

“The many weapons that we have available, ranging from interest rates to forward guidance and asset purchase programs, we stand ready. We have done a lot, and if more is needed because the situation deteriorates, then we will do what is necessary.”

Europe has recorded more than 7.4 million cases of the coronavirus, according to the World Health Organization, with 251,478 related deaths, and hospitalizations rising at an alarming rate.

The resurgence of the virus across the region has prompted France to declare a public health state of emergency, with Germany and the U.K. also announcing new measures over the last 24 hours in an effort to curb the spread of the disease.

WHO’s regional director for Europe, Dr. Hans Kluge said on Thursday that the “exponential” increases in daily cases and matching percentage increases in daily deaths across the region raised “great concern.”

Lagarde was speaking on a CNBC-moderated panel alongside Kristalina Georgieva, managing director at the IMF, Sri Mulyani Indrawati, Indonesia’s minister of finance, and Ngozi Okonjo-Iweala, board chair at global vaccine alliance, GAVI.

Strategic review

The ECB is currently in the process of its first strategic review in almost two decades, with policymakers at the central bank discussing how they might be able to better manage price growth in the euro zone in the wake of the coronavirus pandemic.

One area Lagarde has previously suggested could be under review is the bank’s symbolic 2% inflation threshold. The ECB has consistently undershot its target of keeping price growth “below but close to” 2% for nearly a decade.

The coronavirus crisis has prompted consumer prices to fall even further, fueling a wider debate on whether central banks should explicitly commit to make up for inflation misses over recent years.

In late August, the U.S. Federal Reserve updated its policy to allow inflation to run above its target of 2% “for some time.” It means the central bank will be less likely to raise interest rates in the coming months, a move that has broad implications for financial markets.

Speaking earlier in the day, the ECB’s Lagarde told the IMF’s International Monetary and Financial Committee that the euro zone’s financial stability risks were on the rise due to a surge in debt levels.

Lagarde sought to reassure market participants, however, saying the banking sector had ample resources to absorb losses while continuing to lend.

The International Monetary Fund said on Tuesday the world economy was expected to contract 4.4% this year, with the euro area expected to contract by 8.3% in 2020. The updated forecasts were slightly better than previously expected but reflected a bleak outlook with the coronavirus crisis far from over.

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