2020.11.1114:51:00UTC+00ECB's Lagarde Says Asset Purchases, Longterm Loans Main Tools, Warns Against Vaccine Optimism

Policymakers are set to favor asset purchases and longer term loans at cheaper rates to support the euro area economy during the crisis caused by the coronavirus, or Covid-19, pandemic, European Central Bank President Christine Lagarde hinted on Wednesday, after she clearly signaled late last month that the bank is set to unveil fresh monetary stimulus in December.

She also cautioned against high optimism regarding a vaccine against the coronavirus.

"While all options are on the table, the PEPP and TLTROs have proven their effectiveness in the current environment and can be dynamically adjusted to react to how the pandemic evolves," Lagarde said in an introductory speech at ECB's forum on central banking.

"They are therefore likely to remain the main tools for adjusting our monetary policy."

The ECB's annual event is usually held in the Portuguese town Sintra, while this year it is being held virtually due to the pandemic.

The pandemic emergency purchase programme, or PEPP, was first launched in March with a size of EUR 750 billion, which was increased in June to EUR 1.350 trillion. Asset purchases under this scheme are set to run at least until June 2021.

The targeted longer-term refinancing operations, or TLTROs, were first deployed in June 2014. The third round was TLTRO III was announced in March 2019 and its terms were eased in March this year as the pandemic broke out in Europe.

On Monday, pharmaceutical company Pfizer and a German biotech firm BioNTech announced that the vaccine they have developed is over 90 percent successful in preventing the disease.

"While the latest news on a vaccine looks encouraging, we could still face recurring cycles of accelerating viral spread and tightening restrictions until widespread immunity is achieved," the ECB chief said. "So the recovery may not be linear, but rather unsteady, stop-start and contingent on the pace of vaccine roll-out."

Output in the services sector may struggle to fully recover, in the interim, Lagarde added. Lagarde drew attention to the strong resurgence of the coronavirus that has forced Germany and France, among others, to return to lockdowns.

The second wave of COVID-19 presents new challenges and risks, but the blueprint for managing it is the same, she said. "The ECB was there for the first wave and we will be there for the second wave," she said.