Too early to reduce pandemic ’emergency’ bond purchases: ECB’s Visco

Despite the gradual recovery of economies and the reopening of summer tourism in many parts of the euro area, it is not yet time to end emergency stimulus measures, Italian Central Bank Governor Ignazio said on Sunday. Visco to CNBC during the G-20.

“This is an emergency program linked to the effects of the pandemic,” Visco, who is also a member of the European Central Bank’s board of governors, told Annette Weisbach of CNBC in Venice, Italy.

Visco was specifically referring to the pandemic emergency bond purchases, or PEPP, rolled out in the spring of 2020 to support the economy as the pandemic-induced economic crisis engulfed Europe and much of the world.

Asked if he felt some European officials’ calls for lower bond purchases to be premature, Visco replied: “We haven’t discussed this. But he added: “The effects of the pandemic are not only on market volatility, but also on the ability to return to the 2% target”, referring to the euro zone inflation target. .

“Therefore, until we somehow do not move towards this goal, I think we need to keep all our instruments, and we will discuss this in our meetings,” said Visco. , highlighting the ECB’s dependence on incoming economic data.

The central bank chief’s sentiment was in line with the ECB’s decision in June to maintain its higher pace of bond purchases in the third quarter, despite prospects of a recovery.

“Obviously this is something that is both data driven and not path dependent, but state dependent, so that’s really what we need to do – observe, understand and then decide.” , added Visco.

Inflation in the euro area remains a concern as monetary and fiscal stimulus combined with the recovery spurred by vaccination campaigns boost economic activity and prices. But Visco said he believed the rise in costs would be transitory.

“There are certain items that have increased in price, because of the abolition of VAT (sales tax) reductions in Germany, because of the increase in energy prices … and therefore, yes, we will have a higher inflation rate this year, but we don’t think it’s permanent, ”he said.

The European Central Bank decided on Thursday to revise its inflation target to 2%, with authorized overruns. “It is no longer a ceiling, it is a target, an objective … there has been a certain de-anchoring of inflation expectations,” he added.

The ECB’s previous target was “lower but close to 2%”.

“There is still a substantial slowdown in the European economy; this slowdown is not evenly distributed among countries,” Visco said, stressing that the ECB Governing Council must take into account the inflation rate of the euro area as a whole, not those of individual countries.

“We still expect inflation to be around 1.4 to 1.5% in the medium term. So it must be 2% in the medium term, and when it is 2% in the medium term, we will be happy to have obtained this result. “

The EU has suffered huge economic losses during the pandemic, as has much of the rest of the world. But recent data shows a recovery, Visco said.

“We had a 9% reduction in production last year,” he said, describing the first quarter of this year as “mostly stationary,” followed by a significantly improved second quarter.

“We are making a good rate of recovery for the second half of the year, with, I would say, more than half of what we lost last year being recovered this year. This implies that manufacturing is doing well,” a- he said, adding that the service sector is also recovering.

But there remain several areas of concern, including travel, tourism and recreation, affected by the continued travel restrictions around the world. The rapidly spreading delta variant of the coronavirus is also of concern to health and economic officials.

Still, Visco said he believes the vaccination campaign holds promise for continued recovery.

“The vaccination campaign is a major success, which has improved confidence,” he said. He referred to Venice saying: “In this city there is a lot of tourism now, and mobility, which can be accompanied by something that we still do not observe – this is the new wave”, did he declare.

“So this is the major risk we have to face,” he said. “The measures taken by the government to contain mobility and distancing and so on have been successful, I would say, and the death toll is now significantly reduced. It is therefore a country where the results are really positive; we have to work to maintain them. . “