ECB boosts pandemic stimulus with more bond purchases and bank loans

Policymakers increased and expanded emergency bond purchases, and approved more long-term loans to banks, cheaper or on even cheaper terms. The euro jumped.

  • The Pandemic Emergency Purchase Program was increased by € 500 billion ($ 606 billion) to € 1.85 trillion and was extended for nine months to at least the end of March 2022. Reinvestments will be made until at least the end of from 2023
  • An old bond buying program will continue to operate at a monthly rate of € 20 billion until shortly before interest rates rise.
  • The favorable terms of the ECB’s TLTRO-III bank loan program will run for 12 months until June 2022, with the ECB making three new offers under the program next year. Total amount banks can borrow increased to 55% of banks’ eligible loan stock, from 50%
  • In 2021, four additional Pandemic Emergency Longer Term Refinance Operations (PELTRO) will be offered “to provide effective liquidity support.”
  • The relaxation of the guarantee rules announced earlier this year will run until June 2022. It will reevaluate the measures before the end date.
  • Interest rates were unchanged, with the deposit rate at -0.5%

The President of the ECB, Christine Lagarde, will hold a press conference at 2:30 pm in Frankfurt, when she will also release new economic projections with a first outlook for 2023.

The decision came as European Union leaders moved closer to resolving a dispute over a joint € 1.8 trillion tax package that would put the region on a firmer footing by 2021.

The ECB aims to keep financial conditions relaxed in the face of mounting debt burdens as governments inject fiscal aid into businesses and households. The economy is almost certainly contracting again, with many stores and restaurants forced to close to contain infections.

Also in the background is the risk of a no-deal Brexit. British Prime Minister Boris Johnson and European Commission President Ursula von der Leyen, who held talks over dinner on Wednesday, agreed to give both sides until Sunday to try to bridge their differences.

The recent rise in the euro against the dollar is another headwind for the ECB, which puts downward pressure on inflation by making imports cheaper.

Central bankers have been signaling a new round of stimulus for weeks, emphasizing the need to keep supportive measures in place at least until the economic recovery takes hold. Covid-19 vaccines are just being launched, and the economic scars of the pandemic will last well beyond the end of the health emergency.

Chief economist Philip Lane has also emphasized the need for inflation, which is currently below zero, to return to its pre-pandemic trajectory towards the goal of just under 2% as soon as possible.

The Governing Council reiterated its commitment to maintain the stimulus until “it judges that the coronavirus crisis phase is over.”

This story has been published from an agency feed with no changes to the text

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