Christine Lagarde: Hearing at the Committee on Economic and Monetary Affairs of the European Parliament Introductory statement (by videoconference) by Ms Christine Lagarde, President of the European Central Bank, at the ECON Committee of the European Parliament, Frankfurt am Main, 28 September 2020. * * * Madam Chair, Honourable members of the Economic and Monetary Affairs Committee, Ladies and gentlemen, Thank you very much for giving me the opportunity to speak to you today and to have a frank and timely discussion about the ECB’s monetary policy, as befits the topics you have chosen for this hearing. After a few words on the euro area economic outlook, I will focus my remarks today on the ECB’s monetary policy and in particular on the role of asset purchases, before sharing some reflections on the ECB’s accountability arrangements. The euro area economic outlook The impact of the coronavirus (COVID-19) pandemic is still being felt across the euro area. Businesses are facing difficulties, people are losing their jobs, and prospects about the future remain uncertain. While euro area economic activity rebounded in the third quarter, the recovery remains incomplete, uncertain and uneven. Consumer spending has resumed significantly, but consumers remain cautious owing to anxiety about their job and income prospects.1 Similarly, business investment has been picking up, but weaker demand and elevated uncertainty continue to weigh on firms’ investment plans. In this context, job retention schemes and national guarantees on bank loans remain critically important factors in reducing uncertainty and softening the impact of the pandemic.
First, we have provided access to central bank liquidity at very favourable terms and over long tenors to help maintain the supply of credit from the banking sector. To this end, we have adjusted the terms and conditions of our targeted longer-term refinancing operations (TLTRO III), which strengthen the incentives for banks to lend to the real economy. For a year, banks will be able to borrow at negative rates, which can be as low as –1% on the condition that they lend to the economy. Largely in response to this recalibration, we have seen a very high take-up by banks. And second, we have launched the pandemic emergency purchase programme (PEPP) to ensure the smooth transmission of our monetary policy and to ease the overall monetary policy stance thereby helping to offset the downward impact of the pandemic on the projected path of inflation. The PEPP, launched with an initial envelope of € billion in March, was increased by € billion in June to a total of € billion. We will conduct net asset purchases under the PEPP until at least the end of June 2021 and, in any case, until the Governing Council judges that the coronavirus crisis phase is over. In the current environment of elevated uncertainty, the Governing Council will carefully assess all incoming information, including developments in the exchange rate, with regard to its implications for the medium-term inflation outlook.