ECB needs recovery before winding down Covid measures

LONDON — The European Central Bank ought to look to safe a sustained financial recovery within the wake of the coronavirus pandemic before exiting crisis-fighting measures, Finland’s central financial institution chief advised CNBC on Thursday.

“We are ready to recalibrate our purchases as needed and in that sense, as I said, I would be rather cautious in this regard as I think it is better to be safe than sorry and see that we genuinely have a sustained recovery in the economy before we move to the exit gear in terms of monetary accommodation,” Finnish central financial institution governor Olli Rehn advised CNBC’s “Street Signs Europe.”

“We have both upside and downside risks, depending on the speed of the vaccine rollout and the extent of virus mutations. In this context, the best approach in monetary policy is simply to keep calm and stay the course,” he added.

His feedback come shortly after Dutch central bank chief Klaas Knot told Reuters that an anticipated rebound for the euro zone financial system within the second half of the 12 months might enable the ECB to start phasing out its emergency bond purchases within the third quarter.

The ECB final month decided to ramp up bond shopping for inside its 1.85 trillion euro ($2.2 trillion) Pandemic Emergency Purchase Program, generally known as PEPP. The transfer got here amid worries that rising authorities bond yields (how a lot it prices them to borrow) might threaten the bloc’s financial recovery.

The euro space continues to be ready for coronavirus aid funds on the EU stage, and lots of nations are grappling with a 3rd wave of coronavirus infections, because the tempo of vaccinations lags different components of the world. All of those elements pose dangers to the 19 economies that share the euro.

The International Monetary Fund stated in its World Economic Outlook on Tuesday that the euro space was on observe to develop 4.4% this 12 months, following a contraction of 6.6% final 12 months.

“In the near term, there is still plenty of uncertainty about the speed of the vaccine rollout (and) about the possible extent of virus mutations. But, yes, in the second half of this year and next year, we see the recovery strengthening and certainly, the outlook in this sense is more positive,” Finland’s Rehn stated.

“In terms of policy response, it is better to be safe than sorry and maintain a significant degree of accommodation in monetary policy in order to build a sturdy bridge over these troubled waters of the coronavirus pandemic.”

— CNBC’s Silvia Amaro contributed to this report.

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