ECB leaves rates unchanged but signals more stimulus may come in December as COVID-19 rips into the economy

• ECB left eurozone rates unchanged, but signaled it could provide extra support for the economy in December.
• "We're not going to just stand still," central bank president Christine Lagarde said at a press conference.
• The ECB's Governing Council said it would recalibrate its monetary-policy instruments to respond to the second wave of the COVID-19 pandemic that has forced a number of major economies into lockdown again.

The European Central Bank kept eurozone interest rates unchanged on Thursday, but signaled it might be open to providing additional support for the economy, as a second wave of the coronavirus pandemic has forced lockdowns in the powerhouses of the region, such as Germany and France.

The ECB left rates unchanged at 0.0%, as forecast, and said it would keep its existing asset purchase program at €1.35 trillion euros.

In its statement, the ECB said current risks to the economy were "clearly tilted to the downside" and the bank's staff would reassess its economic outlook at that point and determine if further action was necessary.

"On the basis of this updated assessment, the Governing Council will recalibrate its instruments, as appropriate, to respond to the unfolding situation and to ensure that financing conditions remain favorable to support the economic recovery and counteract the negative impact of the pandemic on the projected inflation path," the ECB said in a statement.

ECB President Christine Lagarde said at a press conference following the decision the momentum in the eurozone economy was deteriorating faster than expected and the central bank would not hesitate to act.

"The circumstances will warrant the recalibration and the implementation of this recalibrated package," she said.

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The bank said it expected headline inflation would likely remain negative until early 2021, because of weak demand, although it expected consumer prices to probably pick up over the medium term, once the impact of COVID-19 fades.

The most recent round of data have shown activity in the services and manufacturing sectors is slowing and confidence is waning. A number of analysts have already cut their forecasts for European gross domestic product growth as a result.

"We're not going to just stand still. We are going to use all the instruments that we have with the entire flexibility that we have, and I'm clearly here referring here to the PEPP more than others, to address the situation," Lagarde said, referring to the ECB's €750 billion Pandemic Emergency Purchase Plan.

"We have done that in the past, we have responded very promptly, very appropriately, very heavily, some would say, to the first wave that hit the euro area economies. We have done it for the first wave and we will do it again for the second wave. But don't assume it will be one instrument. We're going to look at all of them," she said.

The euro fell broadly after Lagarde's comments, dropping 0.6% against the dollar, 0.5% against the yen, 0.2% against the pound and nearly 0.9% against the offshore yuan.

Yields on the interest-rate sensitive two-year German Bund fell by 2 basis points to a five-and-a-half month low of -0.814%.

Europe is now at the epicenter of this next wave of coronavirus infection rates. France and Germany have this week announced national lockdowns that will last a month, leaving only schools and essential businesses working normally, while Ireland has had a lockdown in place for a couple of weeks.

Spain this week declared a state of emergency that is expected to last several months and has targeted lockdowns across the country, while Italy is forcing bars and restaurants to close early and has restricted other activity as well.

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