At its rate-setting meeting today, the European Central Bank (ECB) is expected to announce stimulus measures to counteract the economic
At its rate-setting meeting today, the European Central Bank (ECB) is expected to announce stimulus measures to counteract the economic downturn caused by coronavirus.
A 10 basis point cut from the current -0.5% rate seems likely. The primary question for analysts today is what other measures the ECB will unveil to fight the economic shock caused by the virus.
Eurozone inflation hit a three-month low in February as travel restrictions, falling stock markets and breakdowns in global value chains lowered consumer confidence, particularly in tourism, hospitality and other service sectors. Economists have questioned whether monetary policy will effectively address the threat to consumption patterns.
Singapore has provided one model response to the virus by creating a $4.5 billion relief package helping tourism, aviation, retail, food services and transport. However, scaling this to the eurozone would imply measures worth at least $200 billion. Another possible response the ECB has hinted at would be to introduce looser borrowing terms targeting small and medium enterprises hit by the crisis.
While the ECB appears poised to present a coordinated stimulus package, EU leaders have not united behind an EU-wide fiscal stimulus package—southern countries want more spending while northern member states remain reluctant to loosen the purse strings. Without a corresponding fiscal stimulus package, most measures announced by the ECB today will likely do little to combat the downturn caused by the virus.
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