Lagarde under pressure as ECB set to present coronavirus crisis plan

Christine Lagarde faces her first major test as European Central Bank president on Thursday, when she is set to unveil a package of emergency stimulus measures to confront the coronavirus crisis and a panicked sell-off in share markets.

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Analysts believe the scale of this week’s economic and financial market turmoil will result in the ECB attempting to boost confidence in the eurozone, possibly by doubling its 20 billion euro a month bond-buying programme (22.5 billion dollars) as recession fears mount.

The Frankfurt based central bank is also expected to try to boost liquidity in the 19 -member currency bloc economy through its targeted longer term refinancing operations and to edge its deposit rate deeper into negative territory, lowering it to minus 0.6 per cent.

The deposit rate paid by financial institutions for parking funds at the ECB already stands at a record low of minus 0.5 per cent.

The ECB’s overnight borrowing rate, the marginal lending rate stands at plus 0.25 per cent.

However, the ECB is expected to leave its key refinancing rate unchanged at zero.

while unveiling a new set of economic growth and inflation forecasts for the currency bloc amid a collapse in oil prices, which have added to the economic gloom unleashed by the spread of the Covid-19 outbreak.

“The situation at the moment is fluid, we would expect more easing if Covid-19 has not been contained by June,’’ said Morgan Stanley economist Jacob Neil.

But Lagarde’s real problem is that the ECB appears to have little room for manoeuvre, with the bank having introduced a hefty round of monetary easing last year in the final days of her predecessor, Mario Draghi.

The eurozone entered the New Year in a fragile state with economic growth in the final quarter of 2019 at a seven-year low of just 0.1 per cent, raising concerns about whether the currency bloc is in the best shape to weather a new economic crisis.

While the ECB’s 25-head governing council was deliberating in Frankfurt on Thursday, European stock markets were hit by another wave of panic-selling, in part triggered by the travel ban imposed on 26 European countries by U.S. President Donald Trump.

The European blue-chip index Eurostoxx 50 opened 4.77 per cent down at 2,766.93 points, reflecting the steep falls across European bourses and after shares on New York’s Dow Jones Industrial Average closed down 5.86 per cent on Wednesday.

In Germany, the nation’s benchmark DAX index slumped by 5.5 per cent in opening trading, dipping below the key 10,000-point mark for the first time since mid-2016.

At the same time, the Stoxx Europe 600 travel and leisure index fell by 9.2 per cent, with the sector now at the forefront of the economic fallout from the coronavirus as travel restrictions bite.

Meanwhile, a slew of international events have been cancelled across the eurozone, highlighting the risk of a dramatic economic downturn in the first half of this year.

The eurozone’s third-biggest economy, Italy, is in lockdown and European companies are considering cancelling their annual shareholding meetings, which normally start later this month and form a crucial part of the business calender.