The European Central Bank has ramped up its coronavirus pandemic response by agreeing to inject an additional €600bn (£539.5bn) of emergency financial support into the Eurozone economy.

Faced with the deepest recession in living memory and rapidly rising job losses across the single currency bloc, the ECB said it would increase the size of its quantitative easing bond-buying programme to €1.35tn.

The central bank also said it would extend the scheme, known as the pandemic emergency purchase programme, until at least June 2021 to support the recovery of the eurozone’s stricken economy.

Launched in March at the onset of the crisis with a target to buy €750bn of government bonds and high-quality corporate debt, the scheme is designed to help lower the cost of borrowing for countries, businesses and households within the single currency bloc.

Christine Lagarde, president of the ECB, said the eurozone was undergoing an “unprecedented contraction” as Covid-19 and the lockdown measures used to contain it bring the world economy to an effective standstill.

The ECB kept its key interest rate unchanged at zero and said it would remain there until inflation comes closer to its 2% target. Against a backdrop of plunging global oil prices, inflation has dropped close to zero and is expected to remain subdued this year as the global economy struggles to rebound from Covid-19.

Lagarde said the central bank stood ready to use every tool in its arsenal to support the return to growth across the eurozone. “In the current rapidly evolving economic environment, the governing council remains fully committed to doing everything necessary within its mandate,” she said.

The eurozone economy plunged by 3.8% in the first three months of the year and is expected to fall further again in the second quarter. Largarde said the central bank expected a return to growth in the three months to September, although cautioned the overall speed and scale of the rebound remained highly uncertain.

She said the recovery would depend on the extent to which the coronavirus is contained and the impact on households and businesses is cushioned.

Substantially revising down its growth forecasts for the next three years, the central bank said it expected annual economic growth in the single currency bloc of 8.7% in 2020, before a rebound to 2021 to 5.2 and by 3.3% in 2022.