The European Central Bank does not surprise the markets. The Governing Council has decided to leave interest rates unchanged and to continue the asset purchase programmes. The 1.350 billion euro pandemic Qe, denominated Pepp, will continue until at least June 2021 or in general "until the ECB considers the coronavirus emergency over", while the old quantitative easing of 20 billion a month will continue as expected. The Council "has not discussed an increase in the budget of the Pepp", specified Christine Lagarde answering questions from journalists, but 'Eurotower "remains ready to adjust all its tools, where appropriate, to ensure that inflation continues to approach stably at the level pursued, in line with its commitment to symmetry".
As for the hot topic of the moment, that is the trend of the euro-dollar exchange rate after the revolution established by the Federal Reserve on the monetary policy strategy, Lagarde said: “We have taken note of the change in the Fed's strategy. We started our strategic review last year which had been suspended due to the coronavirus emergency. Now we are about to leave again and on 23 September there will be a seminar. This Covid period has not stopped our analysis work, we are working on our strategy” which will clearly have “a focus on price stability. We will be extremely careful and focused on this.” The management addressed the issue during the board meeting and the Council "will carefully evaluate the incoming information and in particular the changes in exchange rates with regard to its implications on the medium-term inflation outlook", reads the note from the ECB. It should be emphasized that, during the press conference of President Lagarde, the euro strengthened further against the greenback, rising to $1,1889.
The president of the ECB then explained that “Economic data in the Eurozone point to a strong rebound of economic activity even if the level is lower than in the pre-pandemic period", but "the prospects for recovery continue to be surrounded by uncertainties due to the coronavirus emergency".
Moving on to estimates, the ECB is optimistic about the third quarter: “Euro area GDP contracted by 11,8%, quarter on quarter, in the second quarter of 2020. Our information and survey results point to a continued recovery of the euro area economy 'euro and indicate a strong rebound in GDP growth in the third quarter”. For 2020, the ECB has improved forecasts on the GDP of the Eurozone, which should record a drop of 8%, therefore +5% in 2021 and +3,2% in 2022. In June, expectations were for a drop of 9,7% in 2020, with a recovery to 5,2% in 2021 and 3,3% in 2022. On theinflation instead Frankfurt forecasts that “it should reach +0,3% in 2020, +1% in 2021 and +1,3% in 2022”. “Compared to the June 2020 macroeconomic projections – specified Lagarde – the estimate for inflation for 2020 remains unchanged. For 2021 it has been revised upwards. It is unchanged for 2022.”
