As major world economies continue to struggle in the wake of the Covid-19 pandemic, central banks have taken a prominent role in the campaign to stabilize the global economy.
In particular, the US Federal Reserve and the European Community Bank have been at the forefront of this effort. In March, in a move coordinated with other major central banks, the Fed slashed interest rates close to zero and also announced a massive quantitative easing (QE) program of $700 billion.
The ECB was not part of that rate-cutting exercise, for the simple reason that its interest rates are already at zero. However, the ECB announced a QE program totaling 750 billion euros, called the Pandemic Emergency Purchase Programme (PEPP).
For the ECB and its new president, the timing of the corona crisis presents a huge challenge. Christine Lagarde took over from Mario Draghi as President of the ECB at the end of 2019, shortly before the Corvid-19 pandemic would ravage the eurozone and other major economies. Lagarde joined the ECB after eight years as president of the International Monetary Fund (2011-2018).
How will Lagarde handle this global crisis?
She has stated that she plans to have her own style as head of the ECB, but she is expected to continue the accommodative monetary policy that was the hallmark of Draghi’s presidency. When she took over at the helm of the ECB, Lagarde announced her intention to carry out a review of the bank’s monetary policy framework.
However, any plans she may have had to reform or streamline the EB will have to be put on hold, given the severe economic conditions faced by eurozone members. The new president of the ECB has been thrust into a crisis of epic proportions just months into the job, but her experience as head of the IMF should hold her in good stead.
Lagarde may prove to be unconventional in her response to the Covid-19 pandemic. When asked if she considered herself a dove or a hawk, Lagarde replied that she preferred to be considered an owl — “a very wise animal”.
This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.