In a Spiegel interview, ECB president Luis de Guindos attributed the strong rebound in the stock markets to two factors. Firstly, the “rapid measures taken by the central bank and governments to cushion the economic consequences of the pandemic have increased optimism”. Secondly, “the view had prevailed that the pandemic was largely under control”.
But he also warned that “we also know that markets sometimes overreact, both downwards and upwards. Ultimately, the stock exchanges must remain realistic: At the beginning of the pandemic, we saw sharp price falls on the stock markets. ”
He also reiterated that in the middle scenario of the economic impact of coronavirus pandemic, Eurozone economic activity would decreased by -9% in 2020. Prices will only increase by 0.3%. That is “significantly lower” that ECB’s just under 2% inflation target. The central bank is therefore buying more bonds to promote growth and inflation. “Given this sharp decline in economic activity and inflation,” he emphasized, “we had to act. It is our duty to do what is necessary within our mandate.”
