ECB minutes show qualms about pulling out all stops in virus fight

Economy
© Reuters. The spread of the coronavirus disease (COVID-19) in Frankfurt © Reuters. The spread of the coronavirus disease (COVID-19) in Frankfurt

FRANKFURT (Reuters) – European Central Bank policymakers feared a rapid deterioration of the euro zone economy when they decided on an raft of emergency measures but some still expressed reservation about launching new bond purchases, the accounts of the March 18 emergency showed on Thursday.

With financial markets in meltdown and borrowing costs soaring for the euro zone’s weaker members, the ECB agreed in a late night meeting to discard many of its previous stimulus rules and buy up to 1.1 trillion euros of debt this year to help struggling firms and governments.

The move was a remarkable turnaround from just six days earlier, when the ECB agreed on a small increase in asset buys and ECB President Christine Lagarde played down the crisis, even arguing that it was not the ECB’s job to help “close spreads”.

That remark sparked the biggest daily jump in Italian borrowing costs since 2011 and drew fire from investors and even heads of states for what they saw as a lack of solidarity with countries fighting the virus.

“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 ECB said.

“Reservations were expressed by some members about the necessity of launching a new, dedicated asset purchase programme,” the ECB said, adding that policymaker also had concerns about the proposed communication on the issuer limit.

“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,” it added.

The ECB, like other major central banks, has scaled up its response to the pandemic, unveiling a string of stimulus measures, including paving the way for potentially unlimited money-printing.

In another unscheduled meeting earlier this week, the ECB agreed to further measures, easing collateral requirements so banks could borrow more on the cheap, even if the central bank then takes on greater financial risk.

Although the ECB has yet to release fresh growth projections, Lagarde has said that the euro zone economy could contract by up to 10% this year, its biggest drop on record, if the lockdown lasts several months.

Data released since the emergency meeting indicate that ECB has been buying record volumes of debt, skewing its purchases towards Italy, the nation hit hardest by the crisis.

To read the accounts of the ECB’s regular and emergency meetings in March, click on: https://www.ecb.europa.eu/press/accounts/html/index.en.html

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