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ECB opts to wait and see, leaves rates and stimulus program unchanged

Christine Lagarde, President of the European Central Bank, speaks to the media following a meeting of the ECB governing board.

Thomas Lohnes

The European Central Bank opted Thursday to keep its interest rates and emergency coronavirus stimulus program unchanged, while it monitors the economic strength of the euro zone.

The ECB embarked on a massive stimulus program in March to mitigate the economic shock from the pandemic. Last month, it expanded its Pandemic Emergency Purchase Program by 600 billion euros, bringing the size of the stimulus program to 1.35 trillion euros ($ 1.54 trillion) to be deployed until June 2021, or until the bank believes the crisis is over. 

The latest economic projections from the ECB have pointed to an 8.7% contraction in GDP (gross domestic product) for the euro zone this year. However, the IMF has warned that the region could shrink as much as 10.2% in 2020.

Speaking at an event in late June, ECB President Christine Lagarde said: “We probably have passed the lowest point and I say that with some trepidation because of course there could be a second wave.”

Recent economic data has shown a rebound in economic activity, which has coincided with many European countries lifting some of their lockdown measures. However, two ECB members have cautioned about the pace of economic recovery.

ECB Chief Economist Philip Lane warned in a speech last month that, “weak demand, continued supply constraints and ongoing social distancing restrictions are hampering the normalization of economic activity.”

Meanwhile, Klaas Knot, the Dutch central bank governor, said as part of an online forum in June that, “economic activity will only approach the pre-Corona 2019 level by the end of our projection horizon, at the end of 2022.”

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