(Bloomberg) – European Central Bank officials see good reason to keep their cool instead of rushing into an expanding emergency stimulus despite a sharp slowdown in the economy and an increase in coronavirus cases.
As the spike in infections means further social restrictions and a blow to activity, most policymakers are reluctant to expand bond buying again at this month’s meeting, people said. involved in the deliberations. They asked not to be named because the discussions are private.
This reinforces the idea that December is the most likely month for a decision, in part because the Governing Council will receive new growth and inflation forecasts and have more time to assess the economic damage. The US elections will have taken place and uncertainty over Europe’s fiscal stimulus package and Brexit may also have dissipated.
Getting unanimous support for a stimulus would also be easier in December, according to a euro area official. This is an important consideration for President Christine Lagarde who stressed the need to reach consensus around political decisions, having inherited a divided council from her predecessor, Mario Draghi.
An ECB spokesperson declined to comment.
Some officials, including Dutch Governor Klaas Knot, have argued that they want more information before they make up their minds. This suggests that pushing through an expansion in October would risk a split in the Governing Council that could lessen the impact on the market, effectively undermining policy action.
Whatever the outcome, the move will be a major test of Lagarde’s ability to merge divergent views after a display of unity among officials at the height of the pandemic.
“Under Draghi they may have already pushed for this decision, but under Lagarde the ECB is more consensual,” said Nick Kounis, head of macroeconomic research at ABN Amro NV in Amsterdam. “You have to wait for more information to better calibrate your response, and if you have a split it takes time to get consensus, so I don’t think Lagarde is the push yet again.”
Economists expect the ECB to complete its emergency purchase program of 1.35 trillion euros ($ 1.6 trillion) before the end of the year. It is currently set to last until mid-2021, and with less than half the money spent there is also no immediate reason to rush – as Vice President Luis argued. from Guindos this week.
“We will have new projections in December and we will reassess how practical and adequate the package is according to the new projections,” he said.
Still, Chief Economist Philip Lane put the October session of the ECB in two weeks on the line by saying the Governing Council would decide “meeting by meeting” if action was needed.
His colleague Fabio Panetta expressed concern about the price outlook and argued that the ECB should err on the side of too much stimulus. The euro area’s inflation rate is below zero and is expected to stay there for the rest of the year.
For now, policymakers in the region’s two largest economies have urged patience.
Bundesbank President Jens Weidmann has warned of advance rulings that have not been taken due to the expectations this chatter creates. For the French governor François Villeroy de Galhau, “the current very accommodating monetary stance is appropriate”.
“But stable hands are not tied hands: we have a free hand for the future and we will be ready to act more if necessary,” Villeroy said this week.
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