ECB Minutes: Members Saw Need For Bold, Decisive Action Against Covid-19 Shock

ECB policymakers agreed that there was need for decisive action to support the euro area economy as the coronavirus, or Covid-19, pandemic hurt economic activity in the countries in the single-currency bloc, minutes of an emergency policy session on March 18 revealed on Thursday.

In the unscheduled meeting, the bank announced a new EUR 750 billion Pandemic Emergency Purchase Programme to combat the risks posed by the outbreak and escalating diffusion of the coronavirus.

Just six days earlier, the Governing Council left interest rates unchanged and announced a modest relief measure of additional EUR 120 billion bond purchases, even as it said the Eurozone is facing a “major shock” from the coronavirus.

ECB President Christine Lagarde had said it was not the central bank’s job to close spreads and urged a strong fiscal response. Markets were rattled by her comments.

“There was unanimous agreement that bold and decisive action was needed to counter the serious risks posed by the rapidly spreading coronavirus for the monetary policy transmission mechanism, the outlook for the euro area economy and, hence, ultimately the ECB’s price stability objective,” the minutes, which the ECB calls “account”, of the March 18 policy session showed.

The bank said it had become evident after the March 11-12 policy session that the euro area was facing a common shock that warranted a forceful monetary policy response and required additional policy stimulus and support to monetary policy transmission.

“A strong response was also seen to underline the credibility of the ECB’s commitment to use all of its monetary policy instruments to prevent destabilising and self-perpetuating spirals that could disrupt financial markets and put financial and price stability at risk,” the bank said.

Members broadly supported the proposal that purchases would be conducted in a flexible manner, the minutes said, while adding that “reservations were expressed by some members about the necessity of launching a new, dedicated asset purchase programme.”

Some members also raised concerns regarding the proposed communication on the issue share and issuer limits, the minutes said.

“However, notwithstanding the hesitation, readiness was also expressed to go along with the carefully phrased communication, in the light of the scale of the market disruptions and challenges faced in the pursuit of the ECB’s mandate,” the minutes added.

The ECB and its peers in other countries have announced several stimulus measures for their respective economies as the coronavirus outbreak halted economic activity to a large extent across the world.

Earlier this week, the ECB announced that it has adopted a package of temporary collateral easing measures to provide cheap loans to banks, even if it meant the central bank taking on greater risk.

The big euro area countries are facing severe impact on their economic output and countries like Italy and Spain are seeing huge loss of human lives as the coronavirus spread across Europe.

The Bank of France this week estimated that the French economy is set to shrink 6 percent in the first quarter due to the Covid-19 disruption, thus pushing the economy into a technical recession. The predicted decline is the worst since 1945.

Lagarde reportedly said the euro area economy could shrink over 10 percent this year, which is the worst on record, if the lockdowns continue over an extended period of time.

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