Frankfurt (AFP)

The European Central Bank (ECB) made it clear on Thursday that it was preparing to beef up, by the end of the year, its measures to support the economy amid great concern over the second wave of Covid -19 which darkens the hopes of recovery.

In the immediate future, the Frankfurt institution has opted for the monetary status quo: the main interest rate was kept at zero on Thursday, while the banks will be levied a 0.50% levy on a fraction of the deposits that they entrust to the central bank instead of lending them to their customers.

But with a "downward trend", Christine Lagarde explicitly pointed out that there was no question of stopping there.

"We are not going to stand by and do nothing, we will use all the instruments at our disposal with the full flexibility we have (...) to face developments" on the pandemic front, insisted on several occasions the head of the institution, more combative than usual during the press conference following the meeting of the Board of Governors.

- Elk lost -

The ECB teams responsible for proposing a "recalibration" of monetary policy "are already at work" in view of the announcements expected at the next meeting of the Governing Council on December 10, underlined Ms Lagarde.

"We have already done it for the first wave (of Covid-19), we will do it for the second".

In other words, the ECB could increase the size of its asset buyback programs or even lower its rates.

The last decisions of the institution chaired by Christine Lagarde date from June, when the ECB added an extension of 600 billion euros to the emergency program of 750 billion debt purchase, the "PEPP", announced in March , to cushion the shock of the first wave.

In December, the institution could "increase the volume of the PEPP by 500 billion euros and extend it until the end of 2021", anticipates Uwe Burkert, of the LBBW bank.

Other measures could be to grant banks even more generous loans, or to extend the system of negative rate in stages, by exempting more liquidity of the banks hit by this negative rate by the ECB.

These measures are more likely than another rate cut, observers say.

- Unanimity -

The resurgence of the pandemic in Europe has resulted in a flurry of new restrictions on the continent, alarming for economic players.

After Italy, Ireland or the Netherlands, new drastic measures were announced Wednesday evening in France and Germany.

In the first economy of the euro zone, cafes and restaurants, sports and cultural facilities will close throughout the month of November.

If a rebound in growth is expected in the third quarter, after the deconfinement of the summer, the figures for the fourth quarter "will be on the downside", said Christine Lagarde and the epidemic is blowing "a headwind" on the short-term outlook.

Faced with this emergency, the divisions between central bankers on the course of monetary policy seem to have taken a back seat: it is unanimously that "all" the members of the Governing Council agreed on Thursday to work on the adjustment measures to support the economy, insisted Ms. Lagarde.

Arrived at the head of the ECB a year ago, Christine Lagarde found the institution divided between "hawks", supporters of tightening the floodgates of credit, and "doves", urging to continue an accommodating policy.

The pressure is all the stronger on the ECB as inflation in the euro zone is stagnating at a level much lower than that of close to 2% targeted by the bank, even finding itself in negative territory since August.

Low prices which should last until "early 2021", said Ms. Lagarde.

"The crisis places the ECB more and more in front of two major challenges: on the one hand, to get closer to its objective of price stability, while the evolution of prices is dangerously close to deflation. On the other hand, to manage the risks to financial stability ", commented Marcel Fratzscher, president of the Berlin institute DIW.

© 2020 AFP