By Yasin Ebrahim
Investing.com – The euro fell sharply against the dollar Thursday as the European Central Bank kept rates on hold, but in a sign that another monetary policy bazooka looms, the bank said it would "recalibrate" its policy tools in December.
EUR/USD fell 0.77% to $1.1656.
"We agreed, all of us, that it was necessary to take action and therefore to recalibrate our instruments at our next Governing Council meeting," ECB President Christine Lagarde said at a news conference.
Lagarde in no uncertain terms expressed that the bank was looking at using "all instruments," rather than just topping up the €1.35 trillion Pandemic Emergency Purchase Programme, of PEPP, at its Dec. 10 meeting.
"We expect it to increase the volume of the PEPP bond purchase programme by 600 billion euros, to launch new TLTROs next year and probably to lower its deposit rate by 10 basis points," Commerzbank (DE:CBKG) said.
The sense of urgency to deliver more easing at the end of the year has been exacerbated by a second wave of Covid-19 sweeping through Europe, forcing France and Germany, the two biggest eurozone economies, to re-impose lockdowns that will dent growth.
Lagarde warned that risks to the euro area's recovery were "clearly" tilted to the downside, and suggested the pace of recovery or lack thereof would largely depend on how the economic bloc's efforts to contain the virus spread.
The central bank is in the midst of its review policy framework, but has expressed mixed views on adopting the Fed's new inflation measure, which allows prices to run above target over a period of time.
Lagarde said that while headline inflation would likely remain negative until early 2021, it is expected to gather pace over the medium term once the impact of COVID-19 subsides.