ECB Won’t Need Extra Stimulus to Fight Pandemic, Economists Say

(Bloomberg) -- The European Central Bank won’t need to boost its monetary stimulus again to pull the euro-area economy out of its current crisis, according to a Bloomberg survey.

The latest pandemic lockdowns and a likely double-dip recession for the euro zone aren’t enough to push officials into revamping the ultra-loose policies they set in December, economists said. That means the 1.85 trillion-euro ($2.25 trillion) emergency bond-buying program is seen coming to a halt as scheduled in March 2022.

Most said the bond-buying package will be fully used -- the ECB has stated that it might not spend everything -- and none of them expected a rise in interest rates for at least another two years.

The Governing Council holds its next meeting on Jan. 21.

“The ECB will bank on its December recalibration, reiterating that it was enough,” said Bas van Geffen, an economist at Rabobank. “At the same time, the ECB will repeat its commitment to adjust its policy settings again if new developments were to require this.”

President Christine Lagarde said this week that her staff’s latest economic projections still hold, despite a stubborn second coronavirus wave and a slow start to vaccination campaigns. The central bank predicted five weeks ago that the euro area would grow 3.9% in 2021 after a 7.3% slump last year.

Since then, many banks have revised their outlooks to forecast a second straight economic contraction at the start of this year.

Still, Lagarde noted that risks such a no-deal Brexit have dissipated. Germany this week highlighted how the damage from this wave of lockdowns is unlikely to be as severe as a year ago, reporting a shallower-than-expected contraction for 2020 and signaling a relatively robust fourth quarter.

​The ECB boosted its pandemic purchase program by 500 billion euros on Dec. 10, and all but three economists in the survey reckon that’s enough. The central bank has bought 763 billion euros in bonds so far, meaning it still has more than a trillion euros left.

That increase won broad support among policy makers only because Lagarde pledged not to use the entire amount if it isn’t necessary. Yet only a third of those surveyed expect that to be the case.

The ECB is seen keeping its deposit rate at its current level of minus 0.5% through at least the end of 2022.

Apart from asset purchases, officials have relied on ultra-cheap long-term funding for banks to ensure they keep lending to businesses and households. Economists expect 350 billion euros in such loans to be made available this year.

One trigger for changes to monetary stimulus could be a tighter financing conditions, according to respondents.

What Bloomberg Economics Says

“The most likely tweak to monetary policy would be for the Governing Council to exercise the flexibility of the Pandemic Emergency Purchase Program to front-load bond buying.”

--Maeva Cousin, David Powell and Jamie Rush. Read the ECB PREVIEW

SEB strategist Lauri Halikka said he expects asset purchases to remain stable until the third quarter, before slowing in the final three months of the year.

“The ECB is likely to be comfortable with the current policy mix for now,” he said. “Financial conditions have remained very favorable during the past months and the ECB now concentrates on providing cheap, long-term liquidity to banks to support private spending.”