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ECB rolls out more stimulus measures

LONDON (Reuters) -The European Central Bank announced more stimulus measures on Thursday, including the increase and expansion of its debt purchase scheme, to help the region’s economy cope with the second wave of the coronavirus pandemic.

FILE PHOTO: The headquarters of the European Central Bank (ECB) are pictured in Frankfurt, Germany, July 8, 2020. REUTERS/Ralph Orlowski

ECB text:

MARKET REACTION:

Euro zone stocks and the region’s common currency hit day lows during ECB chief Christine Lagarde’s news conference.

German 10-year bond yields nudged slightly higher.

COMMENTS:

KASPAR HENSE, SENIOR PORTFOLIO MANAGER, BLUEBAY AM

“Today’s announcement from the ECB to increase and extend its asset purchases programme was largely in line with expectations. A slight disappointment from a market perspective has been the lack of improvement for bank lending conditions in terms of tiering and a lower refinancing rate via the LTRO measures in place. That said, Italian risk premia is doing well and the extension should help to stabilize and flatten the rates curve for the time being.”

JAI MALHI, GLOBAL MARKET STRATEGIST AT JPMORGAN ASSET MANAGEMENT

“At today’s meeting, it was important for the ECB to not disappoint markets and provide an unwelcome speed bump on the road to the recovery – especially with ongoing restrictions required to contain the spread of the virus through the winter months.

“The most meaningful aspect of the policy in our view was the time extensions to the various programmes. The major programmes have been extended to 2022, which provides an important backstop to the sovereign markets and should help governments who will need to borrow more to support activity while restrictions are in place.”

AARON ANDERSON, SVP OF RESEARCH AT FISHER INVESTMENTS

“Christine Lagarde and other central bankers have sent a clear message they are in no hurry to change ultra-accommodative monetary policies any time soon, especially considering the COVID-19 resurgence and renewed lockdowns. However, it is a mistake to think those policies are propping up the economy or equity markets. Central bankers have flooded bank balance sheets, but those funds are not flowing through the economy normally. In other words, the quantity of money is up but velocity is way down, muting the economic impact.”

MARION AMIOT, SENIOR EUROPEAN ECONOMIST AT S&P GLOBAL RATINGS

“We firmly believe that the Eurozone can recover in 2021 and today’s meeting at the ECB has provided additional grounds for optimism. European economies will be better placed to withstand these second lockdowns with further central bank support.

“We expect a 4.8% GDP rebound across the Eurozone in 2021... This rebound will be supported by an improvement of public health - thanks to the expected rollout of vaccines during the first half of the year, another layer of monetary policy support from the ECB going into 2022, and fiscal stimulus.”

SILVIA DALL’ANGELO, SENIOR ECONOMIST AT THE INTERNATIONAL BUSINESS OF FEDERATED HERMES

“The new inflation forecasts are likely to show core inflation still significantly below target in 2023, which in itself would justify a way more forceful response.

“In other words, it looks like the ECB is well aware of the limits of its tools and their efficacy and it is betting instead on enabling a forceful and targeted fiscal response at both a national and European level. It’s unclear whether this plan will work. In the short-term, the difficulties in approving the EU recovery fund have exposed the shortcomings of the existing institutional framework.”

TD SECURITIES’ EUROPEAN HEAD OF CURRENCY STRATEGY, NED RUMPELTIN

“For the most part the ECB delivered on reasonable expectations. We have seen a bit of bid pop up in the euro but nothing major.”

FLORIAN HENSE, AN ECONOMIST AT BERENBERG

“While today’s policy package may be somewhat unexciting for some market participants, the ECB will be pleased to have largely steered market expectations in the right way. Unexciting if not almost boring – as in ‘the ECB watches the Eurozone economy’s back whatever betide’ – is exactly how the ECB wants to be seen. Stay tuned for the press conference.”

CARSTEN BRZESKI, GLOBAL HEAD OF MACRO AT ING

“All these steps are real central bank engineering, something ECB President Christine Lagarde called ‘recalibration’ at the October meeting, but no actual stepping up of monetary stimulus. Instead, the ECB’s main aim is to extend the current level of monetary accommodation until mid-2022.”

Compiled by the Global Finance & Markets Breaking News team; Editing by Angus MacSwan, Bernadette Baum and Catherine Evans

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