The European Central Bank announced Thursday it will expand its emergency bond-buying program to provide additional stimulus to a eurozone economy battered by the coronavirus pandemic.
The move will add 600 billion euros ($672 billion) to the Pandemic Emergency Purchase Programme (PEPP) that the ECB launched in March, bringing total purchases to 1.35 trillion euros.
The bank said it will also extend the duration of the program from the end of 2020 until June 2021, or until it believes the crisis is over.
“The euro-area economy is experiencing an unprecedented contraction,” the ECB said in a statement, noting that while there are “some signs of a bottoming-out alongside the gradual easing of [virus] containment measures, the improvement has so far been tepid compared with the speed at which [economic] indicators plummeted in the preceding two months.”
The additional measures, the bank said, “will support liquidity and funding conditions in the economy, help to sustain the flow of credit to households and firms, and contribute to maintaining favorable financing conditions for all sectors and jurisdictions, in order to underpin the recovery of the economy from the coronavirus fallout.”
The emergency program has helped keep borrowing costs lower for countries in the eurozone. On Thursday, the ECB left its benchmark Deposit Facility Rate at negative 0.5%.
Some analysts have questioned whether the 600 billion euro increase in the PEPP will be enough to cover purchases until June 2021. But ECB President Christine Lagarde said the increase was deemed to be “the appropriate size” to bring inflation “significantly closer” to its pre-coronavirus path.
“The even more aggressive monetary policy stance helps to contain the downside risks,” Holger Schmieding, chief economist at Berenberg Bank, told CNBC. “In addition, the strong signal can bolster the nascent rebound in the confidence of households and companies that the worst will soon be over.”
The announcement of the PEPP expansion came as the ECB updated its economic forecasts and said it now expected the eurozone economy to contract by 8.7% this year, before rebounding to 5.2% growth in 2021 and 3.3% in 2022.