The eurozone economy is already in its deepest recession on record and economists anticipate the meeting of the European Central Bank (ECB) on Thursday will take further measures to support the 19-nation bloc.
Most analysts polled by Bloomberg expect the ECB, led by president Christine Lagarde (pictured), to leave interest rates intact at the current minus 0.5%. Also, most analysts expect the bank to commit to do more to support the bloc’s economy during this pandemic.
Thursday’s meeting follows what have been a few difficult months despite the ECB pledging to buy more than €1.1trn in assets this year to back eurozone governments who are spending hundreds of billions to support businesses and worker’s pay packets.
The ECB is likely to extend its debt purchases to include junk bonds and provide a backstop for corporate financing.
The central bank could extend the collateral allowance to all higher-rated junk debt and make outright purchases of debt from newly downgraded “fallen angels”, ING analysts said.
Other options include buying exchange-traded funds, bank bonds, offering even more favourable terms on cheap multi-year bank loans and increasing the multiplier on the ECB’s tiered rate. This exempts banks from taking an effective penalty due to negative interest rates for their excess reserves at the ECB.
“Therefore, we expect the ECB to reiterate its commitment to stand ready to increase and extend the purchase programme and stand ready to act should more be needed,” analysts at Danske Bank said.
The latest Reuters poll, taken April 14-22, showed the bloc’s economy contracting by 3.1% in the first quarter and 9.6% in the current quarter. Forecasts for the quarter-on-quarter downturn have not changed much over the past few weeks, but if realised, this quarter would mark the sharpest decline on record.