By Anna Stupnytska, Global Head of Macro
ECB: A smart move, for now
Commenting on today’s announcement from the European Central Bank (ECB), Anna Stupnytska, Global Head of Macro, Fidelity International said:
“The ECB unveiled a targeted stimulus package at its meeting today in an attempt to combat the fallout from the coronavirus which continues to spread rapidly across the world. The ECB's measures seem to be more aggressive than was generally expected and - arguably - more radical than those seen so far from its counterparts in the US and UK.
“In a very smart move, the ECB chose not to cut rates, signalling a change in the reaction function and flexibility in their policy approach in light of an unexpected shock. Rather they chose to focus on more targeted areas where help will be needed. The combination of a boost to the QE programme focused on private assets, together with very attractive TLTRO terms - whereby banks will effectively be paid to borrow from the ECB and lend to the private sector - is unambiguously a step in the right direction.
“However, given the extremely high uncertainty about the spread of the virus and its impact on the economy, it remains to be seen whether these policy measures will be sufficient to see the Euro area through the downturn over the next few months. An area-wide recession is a highly likely outcome but whether it will only be of 'technical' nature depends not just on the virus trajectory and monetary policy backstop but also on fiscal policy.
“In this regard, we are yet to see a more aggressive push towards fiscal easing across the member states. If this is not the time to break fiscal rules and open the taps, then when? After all, the future of the Euro area may, yet again, be at stake.”