FRANKFURT: European Central Bank policymakers meeting last month agreed they could not afford to seem complacent in the face of a second-wave of coronavirus infections, opting instead for promising more stimulus to support the economy, the accounts of the meeting showed.
The ECB triggered a market backlash during the first wave of the pandemic in March, when investors deemed its initial moves too timid to stem an accelerating market crash.
Policymakers seemed to have taken that lesson on board at their Oct 29 meeting as they were growing increasingly worried about a double-dip recession that could inflict permanent damage on the economy.
“Any sign of complacency – even inadvertent – could be detrimental in the present circumstances,” policymakers said, according to the accounts published on Thursday. “Clear risks to GDP growth had emerged for the fourth quarter.”
Policymakers agreed to unveil a new package in December, consisting mainly of bond purchases and subsidised loans for banks, and left only its details up in the air.
But accounts of the Oct 29 meeting showed waning confidence that stimulus would help the bloc weather more than a year of pandemic-related restrictions without suffering more permanent scars that could weigh on growth in the longer term.
“It would be important to consider the possibility that the pandemic might have longer-lasting effects both on the demand side and on the supply side, reducing potential growth, ” the ECB said in the accounts.
ECB chief economic Philip Lane also warned that inflation, which has been in negative territory for months, will remain negative into 2021, longer than the ECB previously expected under its baseline scenario.
The low inflation comes as unemployment surges and policymakers argued that the jobless rate is likely to rise further with large chunks of the services sector at risk of losing more jobs.
The ECB will next meet on December 10 and ECB President Christine Lagarde already said that while all instruments will be discussed, the main tools will be the Pandemic Emergency Purchase Programme and the Targeted Longer-Term Refinancing Operations.
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