ECB debates how to get back to the economic future after pandemic
April 18 2021 09:40 PM
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The European Central Bank headquarters in Frankfurt. While the ECB policy makers will reiterate existing emergency stimulus settings with a horizon of March 2022 when they meet by video this week, the step-up in immunisations across the region has emboldened some of them to start a public discussion on what might happen when the pandemic no longer menaces the euro region.

Bloomberg/Brussels

Europe’s late but accelerating vaccination push is allowing monetary officials to begin pondering an economic future free of the curse of the coronavirus.
While European Central Bank policymakers will reiterate existing emergency stimulus settings with a horizon of March 2022 when they meet by video this week, the step-up in immunisations across the region has emboldened some of them to start a public discussion on what might happen when the pandemic no longer menaces the euro region.
There’s a spectrum of views on that outlook. Dutch central bank Governor Klaas Knot favours tapering crisis bond purchases as soon as the third quarter, while his French colleague, Francois Villeroy de Galhau, cites March as a possible end date. President Christine Lagarde reckons monetary support will be needed “well into the recovery.”
ECB officials know only too well that weaning financial markets off emergency stimulus is a fraught task. For now, they have the comfort of knowing that they still have time before any winding down of stimulus needs to begin, and in the meantime they can look across the Atlantic for a guide to the pitfalls.
The Bank of Canada has already hinted that it might be one of the first Group of Seven institutions to start paring back monetary policy support. At the central bank’s next decision on Wednesday, officials may announce slower bond purchases, a policy shift that their counterparts in Frankfurt can only dream of for now.
“The ECB will no longer have to fret about rising government borrowing costs when it meets on April 22. A full assessment of the pace of asset purchases will not happen until June, but the tone of this week’s press conference may offer some hints on the debate to come. The hawks are likely to focus on the successful containment of bond yields and the economic recovery, while the doves will be more cautious”, says David Powell, senior euro-area economist. 
Elsewhere, central bankers in Russia, Israel and Indonesia also hold rate decisions and China follows up record-breaking GDP data with its high-profile Boao forum.
US and Canada: In the US, investors will be watching for the latest reading of weekly jobless claims – after they dropped to a new pandemic low – to gauge whether upside momentum in the labour market is holding. Reports on manufacturing, services, new and existing homes sales are also due out.
Officials at the Federal Reserve are in blackout ahead of their next policy meeting on April 27-28. If the Canadian central bank’s decision on Wednesday proceeds to detail next steps to pare bond purchases, such a roadmap would set policy apart from the neighbouring US, where the Fed isn’t expected to attempt a so-called taper until next year.
The BoC has been buying a minimum of C$4bn ($3.2bn) in government bonds each week, accumulating more than C$250bn over the past year. That pace is likely no longer warranted with an outlook that appears to improving dramatically by the week, helped by a recovery in commodity prices and a robust housing market.
Meanwhile, Canadian Prime Minister Justin Trudeau will make a pitch for tens of billions in additional spending to support the recovery.
Asia: China is signalling it’s open for business with the resumption of its high-profile Boao forum, where key leaders, senior government officials and business executives will discuss the economy’s outlook in a post-pandemic world. Among likely speakers are PBoC’s Governor Yi Gang, IMF Managing Director Kristalina Georgieva, Apple’s Tim Cook, Tesla’s Elon Musk and BlackRock CEO Larry Fink.
Japanese export figures will offer an indication of how firmly world demand is recovering as the pandemic grinds on. Early April figures for South Korea will provide an even more up-to-date snapshot of the health of global trade, as will Taiwan export orders for March.
Japan inflation numbers are still likely to show falling prices ahead of a Bank of Japan meeting the following week that is set to show inflation failing to reach 2% during Haruhiko Kuroda’s stint as governor.
Indonesia is set to keep interest rates steady at tomorrow’s meeting.
Europe, Middle East, Africa: Initial data on economic activity in April will likely show the UK’s dominant services industry has rebounded strongly as larger parts of the economy reopened. The same can’t be said about activity in major eurozone economies reeling under renewed restrictions.
UK inflation, meanwhile, probably stayed well below the Bank of England’s target in the previous month.
Data on Wednesday will probably show that Ghana’s economy grew 1.3% in the fourth quarter after the country eased pandemic restrictions. In South Africa, inflation is forecast to accelerate to 3.3%, back within the lower bound of central bank’s target range.
Latin America: Look for Brazil’s economic activity indicator posted Monday to show a second straight decline in February, which reflects the end of government aid to poor families, rising prices and a deadly new phase of the pandemic.
Though well short of the crisis in Brazil, a new wave of the virus in Colombia likely undercut February’s economic activity index after a -4.6% print in January.



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