* Near term increasingly challenging
* The ECB has plenty of undeveloped firepower
* Long-term uncertainty over recession
FRANKFURT, Jan 21 (Reuters) – The European Central Bank will keep its easy money policy unchanged on Thursday but will keep the door open for further stimulus as the second wave of COVID-19 spreads a view that is like is weak.
After extending stimulus well into next year with a major support package in December, ECB policymakers want to give governments the baton and fiscal policy to keep the eurozone economy afloat until the can resume normal business activity.
But new locks, a slow start on vaccines across the 19 countries that use the euro, and the strength of the currency will raise headlines for exports, challenging the ECB’s predictions of next -Strong animation begins in season two.
ECB President Christine Lagarde seems to be saying that more stimulus is no longer needed as the ECB has incorporated so much flexibility into its support schemes that it could ramp up easily without seeking a new round of permission from policymakers.
“The rebalancing of the ECB’s policy instruments in December has been well received by markets, which means that there is no urgency for the ECB to reflect a new policy position,” said strategist Danske Piet Haines Christiansen.
The ECB will announce its policy decisions at 1245 GMT, followed by a Lagarde press conference at 1330 GMT.
NO BAD
Instead of policy action, Lagarde seeks to provide support through positive communication, making it clear that she is aware of the risks while arguing that they may be harassed.
It tends to admit that the future is more challenging than some more optimistic forecasts allow, and that commercial banks’ plans to restrict access to credit will be a drag on growth.
But that shouldn’t affect the long-term, especially since many major uncertainties have been resolved: COVID-19 vaccines are being used, the Brexit treaty has been made and the establishment of the President Joe Biden Wednesday ends U.S. election.
Elegant market signals support Lagarde’s argument. Stocks are rising, interest rates are stable and government borrowing costs are falling, despite some political drama in Italy.
The Pandemic Emergency Purchase Program (PEPP) also contains around 1 trillion euros of undeveloped funds to support its commitment to keep loan costs low.
Recent economic history also favors the ECB. When most of the economy opened up last summer, activity rebounded faster than expected, indicating that companies were more stable than they feared.
“Wisely, we believe the ECB will be less aware of market pressures and inflation expectations, increasingly calling for fiscal policy to be involved in determining future inflation,” he said. Societe Generale economist, Anatoli Annenkov.
Lagarde can also raise questions about the euro, arguing that its consolidation has been almost directly against the dollar. On the basis of trade pressure, more relevant to exporters, the single currency has weakened since the last policy meeting of the ECB on 10 December.
Inflation is expected to remain a thorn in the side of the ECB, however, falling far short of target for years to come even though high demand for oil will help put upward pressure on prices. in 2021.
With a decision on Thursday, the ECB benchmark investment rate will remain at minus 0.5% while the total quota for bond purchases under PEPP is kept at 1.85 trillion euros. (Edited by Catherine Evans)