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ECB is watching out for pandemic-induced credit crunch

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The European Central Bank is watching out for signs of a credit crunch as banks see their profits wiped out by the coronavirus pandemic and brace for a wave of unpaid loans once government support schemes expire, ECB board member Isabel Schnabel said on Thursday.

“We are monitoring this very carefully, we’re looking at whether this translates into tighter credit standards and lower lending, which could also impair (ECB) policy transmission,” Schnabel told a conference via videolink. 

Meanwhile, The European Central Bank has to use the tools at its disposal as the coronavirus pandemic depresses inflation expectations and an incipient recovery loses steam, ECB vice president Luis de Guindos said on Thursday.

“Inflation expectations are very subdued as a result of the pandemic and some specific factors and we have to act with the tools available to us,” de Guindos said in response to a question about the ECB’s bond purchases during a live interview with Spanish newspaper el Economista.