Philip R Lane: The European Central Bank's monetary policy response to the pandemic - liquidity, stabilisation and supporting the recovery

Speech by Mr Philip R Lane, Member of the Executive Board of the European Central Bank, at the Financial Center Breakfast Webinar, organised by Frankfurt Main Finance, 24 June 2020.

The views expressed in this speech are those of the speaker and not the view of the BIS.

Today, I will discuss the impact of the monetary policy measures taken by the ECB in response to the pandemic emergency on euro area financial conditions and the outlook for growth and inflation. As I will explain, our measures have been an effective and efficient reaction to the COVID-19 crisis by boosting liquidity, stabilising financial markets and supporting the recovery.

Let me briefly recall the unprecedented challenges that warranted a decisive monetary policy response. The European and world economies are experiencing an extraordinary and severe contraction. The measures taken to contain the spread of the coronavirus since early March have interrupted many economic activities worldwide. Large-scale job and income losses, along with an exceptional degree of uncertainty about the economic outlook, have led to a significant drop in consumer spending and business investment.

As the containment measures are lifted, we see some signs of an initial recovery. However, this process is expected to be quite gradual, since it will take time for consumers and businesses to recover from this shock. Income losses and precautionary savings continue to weigh on consumption. Likewise, weak demand, continued supply constraints and ongoing social-distancing restrictions are hampering the normalisation of economic activity.