ECB ready to expand stimulus in June to fight recession

US, WASHINGTON (ORDO NEWS) — The European Central Bank (ECB) is “fully prepared” to take even more incentives in June to support the economy, which could fall by 0.1% this year due to the coronavirus pandemic, reports of the April meeting of the bank showed, reports Reuters.

The ECB has already unveiled a long list of measures to mitigate the recession, including bond purchases and loans worth € 1.1 trillion at extremely negative rates.
It is noted that politicians fear that this may not be enough.

Claiming that recovery immediately after a recession is unlikely, as travel restrictions can be long-term, politicians emphasized the flexibility of the bank’s emergency procurement scheme of € 750 billion, which is its flagship bond buying scheme during the crisis.

“He (the Board of Governors) was fully prepared to increase the size of the PEPP (pandemic emergency asset repurchase program) and adjust its composition and possibly its other tools if, in light of the information that became available before its June meeting, he will decide that the scale of the incentives did not match what was needed,” the ECB said.

While policymakers held back adjustment in bond purchases in April, these accounts are likely to stimulate speculation about such a measure at the next meeting of central bank politicians on June 4.

Analysts polled by Reuters expect the ECB to increase its bond purchases by € 375 million in June, and some say it will grow by $ 750 million.

Politicians are also likely to discuss in June the purchase of corporate bonds that have recently lost their investment grade rating, and speculation on the so-called “fallen angels” (a high-yield bond that has lost a level acceptable to investors) may increase after the ECB board member Isabelle Schnabel emphasized this problem.

“The number of bonds of the Fallen Angel was increasing, while the downgrade of high-yield issuers was already much more noticeable,” Schnabel said.

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