The European Central Bank (ECB) is pumping an additional $675 billion into its Pandemic Emergency Purchase Programme (PEPP) as it tries to cushion the economic and financial fallout from the COVID-19 pandemic.
The sum is considerably higher than the amount predicted by economists and brings the fund's total to more than $1.5 trillion, with the ECB leaving the door open for further stimulus.
At a press conference following the announcement, ECB president Christine Lagarde said the euro area economy is "experiencing an unprecedented contraction" caused by an abrupt drop in economic activity.
She said: "While survey data and real-time indicators for economic activity have shown some signs of a bottoming out alongside the gradual easing of containment measures, the improvement has so far been tepid compared with the speed at which the indicators plummeted in the preceding months."
ECB President Christine Lagarde has announced an additional $675 billion of funding will be pumped into its Pandemic Emergency Purchase Programme./AP
The ECB also announced that the PEPP program would be extended until at least June 2021 and remains open to additional funding after vowing to continue net asset purchases until "it judges that the coronavirus crisis phase is over."
The emergency program gives countries the space needed to launch massive support programs by soaking up large pools of government debt and keeping a lid on rising interest rates. On Wednesday, Germany was the latest to unveil a new round of stimulus topping $145 billion.
The PEPP was on track to run out of money in October, and while the ECB could have announced an increase at a later meeting, doing it now sends a clear message to the markets.
"They want to present certainty and they want to avoid speculation in European markets," said Carsten Brzeski of ING Research. "It signals to the outside world that all policy makers stand together, that they're really putting everything on the table to really kickstart the economic recovery of the eurozone and Europe.”
Read more: France and Germany propose vast EU recovery fund
Europe is going to need all the help it can get. On Thursday, the ECB also unveiled vast downward revisions to its growth forecasts. It now predicts the eurozone economy will shrink 8.7 percent this year, before rebounding 5.2 percent in 2021 and 3.3 percent in 2022.
Inflation forecasts were also slashed on the back of low oil prices and months of lockdowns. The ECB expects inflation of just 0.3 percent this year, 0.8 percent in 2021 and 1.3 percent in 2022.
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