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The Euro Symbol at Willy Brandt Platz in Frankfurt
The new measures aim to drive down longer-term borrowing costs and help keep credit affordableImage: Imago-Images/J. Huebner

ECB keeps interest rates at 0, expands stimulus program

December 10, 2020

The European Central Bank has continued its program of ultra-cheap loans for banks and expanded its stimulus program. It has warned that the eurozone is still facing a high amount of uncertainty over the pandemic.

https://p.dw.com/p/3mWir

The European Central Bank on Thursday kept its key interest rates at historic lows and expanded its stimulus program.

The 25-member governing council left its benchmark refinancing rate at 0% and its deposit rate at negative 0.5% — meant to encourage banks to lend money rather than to hold onto it.

It also expanded its emergency bond-buying program by €500 billion ($604 billion), bringing it to a total of €1.85 trillion.

This will be achieved with newly-printed money; it aims to drive down longer-term borrowing costs and help keep credit affordable and plentiful for consumers, businesses and governments.

The program has been extended to the end of March 2022, from its original expiration date of June 2021.

Uncertainty remains high

"The monetary policy measures taken today will contribute to preserving favorable financing conditions over the pandemic period, thereby supporting the flow of credit to all sectors of the economy, underpinning economic activity and safeguarding medium-term price stability," the ECB said."At the same time, uncertainty remains high, including with regard to the dynamics of the pandemic and the timing of vaccine roll-outs."

The decisions were largely in line with market expectations.

The move was made as the bloc battles a second wave of coronavirus over the winter, seeking to help businesses survive until the pandemic eases, and help support governments that are borrowing heavily to pay for aid to businesses and workers.

Many national governments have already instituted heavy lockdown measures, and more lockdowns are being considered which will affect economic output.

With the pandemic worsening, the eurozone economy is expected to shrink again in the last quarter. Quarter-on-quarter, the eurozone rebounded in Q3 after a Q2 period blighted by initial lockdowns in a string of countries. Year-on-year growth rates are down across the board since the pandemic reached the continent.

Mass vaccinations should begin early next year, but it could take many months for enough people to be vaccinated that it properly limits the spread and helps the economy open up fully.

Separately, EU leaders will meet on Thursday to try and push through a €750 billion recovery fund that is currently being held up be Poland and Hungary, who object to provisions tying the assistance to upholding standards on the rule of law.

aw/msh (AP, Reuters, AFP, dpa)

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