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Financial News: ECB's Lagarde Says Stimulus Acceleration To Show Up

ECB's Lagarde Says Stimulus Acceleration To Show Up In Long Term

03/18/2021 - 10:15:00 (RTTNews)

(RTTNews) - European Central Bank President Christine Lagarde said Thursday that the acceleration in buying bonds under its pandemic-era scheme will start to show in the long term. At its latest policy session last Thursday, the Governing Council decided to "significantly" accelerate the pace of its bond purchases under the EUR 1,850 billion pandemic emergency purchase program, or PEPP.

"While records of our weekly purchases will continue to be distorted by short-term noisy factors - such as occasionally lumpy redemptions - the step-up in the run-rate of our programme will become visible when ascertained over longer time intervals," Lagarde said at a hearing in the European Parliament.

The euro area economic outlook in the short term remains surrounded by uncertainty and preserving favorable financing conditions over pandemic period remains essential, the ECB chief said. Eurozone economic recovery is set to lag behind that of the U.S. as the coronavirus vaccination rollout in the bloc is slow and the fiscal support is relatively smaller. The recent suspension of the Oxford-AstraZeneca vaccine has delayed the process further.

"While we believe that 2021 will be the year of the recovery, we don't see it happening until the second half of 2021, and any yield increase that may act as a bit of a brake would be undesirable," Lagarde told lawmakers, echoing the sentiment from the recent policy session. ECB policymakers have already expressed concern over rising market interest rates. The US Federal Reserve raised its macroeconomic projections on Wednesday and forecast no rate hike until 2024. This pushed up long-term treasury yields. "If sizeable and persistent, increases in those market interest rates, when left unchecked, may become inconsistent with countering the downward impact of the pandemic on the projected path of inflation," Lagarde said.

The ECB chief stressed the pressing need for decisive action in other policy areas to support recovery. An ambitious and coordinated fiscal stance remains critical, the central banker said. Stimulus measures must be designed to be temporary and targeted to address vulnerabilities effectively, she added.

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