ECB: another stimulus may come in December

Today, the ECB met and, as expected, reserved some additional time to think about its monetary policies given the recently announced lockdown of France and Germany. The bank has indicated that it will adjust its monetary policy at its next meeting in December when it will be clear how much the latest restrictions have affected the process of economic recovery. However, there is still an emergency session at stake, which would come into play provided the situation worsened even more. However, the ECB is rapidly running out of ammunition and it is not clear what tools will use.

 

No change for now

The ECB left the key interest rate and the volume of quantitative easing unchanged today but indicated that pandemics and subsequent restrictions are likely to require further monetary easing, which is expected to be discussed at the December meeting. According to the ECB, the risks are skewed. The main problem now is that the ECB is running out of tools that it could use. Interest rates are already at record lows and, of course, it is proposed to reduce them further to negative, but this does not seem to be the plan. An increase in the volume of bond purchases is more likely, making the ECB the main creditor of euro area debt.

 

Further actions based on monetary policy review and pandemic developments

The bank will monitor not only the situation around the pandemic but also the development of the vaccine and its possible arrival in Europe. The stagnant rise in prices is contributing to the further easing of monetary policy, however,  whether to adjust the monetary target or not, that will be decided only after the revision of monetary policy is done, which should be in December. Until then, the inflation target remains below but close to 2%. Monetary policy thus remains unchanged for the time being, but there is also an emergency meeting at stake in case the situation around the pandemic worsens even more.

 

The next meeting of the ECB is scheduled for 10 December. For the German DAX, the meeting was a boost as it’s already gradually wiping out massive losses, to which it fell in June. However, the main European currency remains under strong pressure and is already weakening below 1.17 on the EURUSD pair.

 

Chart: 30M EURUSD (Source: ctrader PurpleTrading)