Lagarde: New Coronavirus Cases Pose “Clear Risk” to Economy

  • “It’s come earlier, and from that point of view that has surprised. It’s not a good omen.”
  • The ECB Council will hold a monetary policy meeting next week.
  • Pablo Hernandez de Cos, Governor of the Bank of Spain, said earlier on Tuesday that there is no room for complacency.

European Central Bank President Christine Lagarde said on Tuesday that the unexpectedly accelerated growth of new coronavirus poses a “clear risk” to the economic outlook. This statement is a sign that policymakers will step up to adopt more monetary stimulus measures.

European Central Bank

“Most scientists in the euro zone were expecting the resurgence of the epidemic in November or December, with the cold,” Lagarde said in a pre-recorded interview with France’s LCI on Tuesday evening.

“It’s come earlier, and from that point of view that has surprised. It’s not a good omen.”

“What is extraordinary is that points of view are expressed, sometimes confront each other, and figures are compared and at the end of the day we get to a position that is the collective position,” she said.

A few hours before the Lagarde interview video was broadcast, Philip Lane, chief economist of the European Central Bank, said that although the new coronavirus may be contained, if the control of the epidemic fails, “we must prepare for a worse situation.”

The ECB Council will hold a monetary policy meeting next week, but economists and investors generally predict that the central bank will not increase its €1.35 trillion ($1.6 trillion) emergency bond purchase program until December. At that time, officials will update economic growth and inflation forecasts, or provide evidence for more actions.

It is expected that the Bank of England will also increase its bond purchase plan at its monetary policy meeting early next month and issue revised expectations.

Since the European Central Bank meeting last month, central bank officials have held heated discussions on monetary policy in public. Policymakers have reiterated their official position, that stimulus measures will be increased if necessary, but people have different opinions on whether it will be necessary.

Pablo Hernandez de Cos, Governor of the Bank of Spain

Pablo Hernandez de Cos, Governor of the Bank of Spain, said earlier on Tuesday that there is no room for complacency.

“Significant monetary stimulus will have to be maintained until we achieve a solid recovery,” Hernandez de Cos said during an online presentation.

“Moreover, we cannot rule out the possibility” that existing measures “may have to be recalibrated, or new measures introduced.”

“The damage caused by the premature withdrawal of support measures would exceed the possible cost of maintaining them until the recovery shows signs of sufficient strength,” he said.

Austrian central bank governor, Robert Holzmann, said on Monday that he has not yet seen the need to increase easing policies.

Lagarde talked about such differences in an interview, saying that they reflect different cultures, assessments of prospects, and views on the role of monetary and fiscal policy. These differences have been resolved. She once again called on the government to work with the central bank to save the economy.

“We are in a massive transformation of our economies, and I think it is very important that fiscal policies, monetary policies, but above all, structural developments, have a common cause,” Lagarde said. “It won’t be very easy.”

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Benedict Kasigara

I have been working as a freelance editor/writer since 2006. My specialist subject is film and television having worked for over 10 years from 2005 during which time I was the editor of the BFI Film and Television.

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