ECB to provide ample monetary accommodation for extended period: chief economist

The European Central Bank (ECB) will need to continue providing ample monetary accommodation for an extended period, even after the disinflationary pressures caused by the pandemic have been sufficiently offset, ECB chief economist Philip Lane said on Thursday.

“Looking ahead, it is clear that the successful containment of the virus and the fostering of a sustainable recovery will require an extended period of favorable financing conditions for all sectors of the economy,” Lane said, according to a version of his speech published by the ECB.

At a January press conference, ECB President Christine Lagarde underlined “favorable financing conditions” as an important variant in the implementation of the pandemic emergency purchase program.

Lane on Thursday gave a more detailed and technical account of the matter, describing a focus on preserving favorable financing conditions as “the compass guiding monetary policy”. Preserving favorable financing conditions for an extended period of time would help support inflation development through multiple channels and help the ECB achieve its price stability objective, Lane noted.

It reduces financing uncertainty, underpins confidence in recovery, and would “help to prevent an undue tightening of financing conditions in a situation of an improving macroeconomic landscape, as markets factor in the reaction of the ECB,” he said.

Lane also stressed a multi-faceted approach that takes in a broad spectrum of indicators to examine financing conditions for the whole economy.

Among them, Lane said the ECB would monitor the overnight index swap curve, a proxy for a risk-free curve in the euro area, and the GDP-weighted sovereign bond yield curve.