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European Central Bank urges leaders to act on economy

The ECB held off providing new measures of its own on Thursday after its stimulus in recent weeks helped keep borrowing costs for companies and consumers at roughly pre-virus levels. At its last meeting June 4, the bank's 25-member governing council increased its pandemic emergency bond purchase program by 600 billion euros to 1.35 trillion euros (USD 1.7 trillion), a step which pumps newly created money into the economy with the aim of keeping credit cheap and abundant for those who need it.

PTI | Frankfurt | Updated: 16-07-2020 19:22 IST | Created: 16-07-2020 19:22 IST
European Central Bank urges leaders to act on economy

The European Central Bank is taking a break after deploying massive stimulus measures in recent weeks and on Thursday urged European leaders to help the economy by agreeing on a fund to support the regions hardest hit by the virus outbreak. ECB President Christine Lagarde said that “an ambitious and coordinated” effort from governments “remains critical” on top of the monetary policies enacted by the central bank.

European leaders are gathering Friday to discuss a collective plan to borrow and spend to promote a post-pandemic recovery, including through investment in digital services and a transition to an economy that emits less greenhouse gases. Lagarde said the bank's governing council “urges further strong and timely efforts to prepare and support the recovery... It is important for the European leaders to quickly agree on an ambitious package".

The EU's executive commission has proposed a 750 billion euro recovery fund, on top of 540 billion in previous support programs including wage support for companies in return for not laying people off. But there are disagreements on what conditions to attach to the money and how much of it will be loans and how much outright grants. The ECB held off providing new measures of its own on Thursday after its stimulus in recent weeks helped keep borrowing costs for companies and consumers at roughly pre-virus levels.

At its last meeting June 4, the bank's 25-member governing council increased its pandemic emergency bond purchase program by 600 billion euros to 1.35 trillion euros (USD 1.7 trillion), a step which pumps newly created money into the economy with the aim of keeping credit cheap and abundant for those who need it. One big goal for central banks such as the ECB and the U.S. Federal Reserve is to prevent the public health crisis from creating panic on financial markets that would constrict financing for companies at a time when many are struggling to stay in business due to restrictions on activity or reluctance by consumers to risk infection through face to face interaction.

The ECB left its other stimulus settings unchanged on Thursday. The benchmark interest rate for lending to banks remains at zero and the rate it pays on excess cash left as overnight deposits remains at negative 0.5per cent. That is a penalty aimed at pushing banks to lend the money to businesses and households. The bank is also purchasing 20 billion euros in corporate and government bonds to support growth and strengthen inflation toward its goal of just under 2 per cent. Inflation in June was 0.3 per cent The EU's executive commission forecasts the economy of the 19 countries that use the euro will contract by 8.7 per cent in 2020 and grow by 6.1 per cent in 2021.


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