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ECB to continue with higher pace asset purchases in Q3

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     The European Central Bank (ECB) left its key interest rates steady, as widely expected, but said it would continue to purchase assets under its pandemic emergency purchase program (PEPP) “at a significantly higher pace” in the third quarter of this year than in the first months.
      In March the ECB – the central bank for the 19 countries that share the euro currency – sped up its asset purchases under PEPP during the second quarter of this year to ensure long-term government bond yields remained low and will now continue with this pace in the quarter from July through September.
     In its statement, the ECB’s governing council said the decision to conduct purchases at a significantly higher pace “over the coming quarter” was “based on a joint assessment of financing conditions and the inflation outlook.”
     The ECB’s President, Christine Lagarde, will hold a news conference later today to comment on the decision.
      Apart from commenting on its pace of asset purchases in the coming quarter, the ECB reiterated its statement from April, including maintaining the PEPP’s total purchase amount of 1.850 billion euros that it would continue with these to at least the end of March 2022 or until the coronavirus crises is over.
     PEPP was originally set up in March last year – at the height of the COVID-19 crises – with a size of 750 billion but in June the program was expanded by 600 billion and then in December it was expanded for the second time by 500 billion and its life extended.
     The ECB left its key interest steady, including the benchmark refinancing rate at 0.0 percent, the marginal lending rate at 0.25 percent and the deposit rate at minus 0.50 percent. The refi and lending rates have been kept steady since March 2016 and the deposit rate since September 2019.
     The European Central Bank issued the following press release:


“At today’s meeting, the Governing Council decided to confirm its very accommodative monetary policy stance:

The interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility will remain unchanged at 0.00%, 0.25% and -0.50% respectively. The Governing Council expects the key ECB interest rates to remain at their present or lower levels until it has seen the inflation outlook robustly converge to a level sufficiently close to, but below, 2% within its projection horizon, and such convergence has been consistently reflected in underlying inflation dynamics.

The Governing Council will continue to conduct net asset purchases under the pandemic emergency purchase programme (PEPP) with a total envelope of €1,850 billion until at least the end of March 2022 and, in any case, until it judges that the coronavirus crisis phase is over. Based on a joint assessment of financing conditions and the inflation outlook, the Governing Council expects net purchases under the PEPP over the coming quarter to continue to be conducted at a significantly higher pace than during the first months of the year.

The Governing Council will purchase flexibly according to market conditions and with a view to preventing a tightening of financing conditions that is inconsistent with countering the downward impact of the pandemic on the projected path of inflation. In addition, the flexibility of purchases over time, across asset classes and among jurisdictions will continue to support the smooth transmission of monetary policy. If favourable financing conditions can be maintained with asset purchase flows that do not exhaust the envelope over the net purchase horizon of the PEPP, the envelope need not be used in full. Equally, the envelope can be recalibrated if required to maintain favourable financing conditions to help counter the negative pandemic shock to the path of inflation. 

The Governing Council will continue to reinvest the principal payments from maturing securities purchased under the PEPP until at least the end of 2023. In any case, the future roll-off of the PEPP portfolio will be managed to avoid interference with the appropriate monetary policy stance. 

Net purchases under the asset purchase programme (APP) will continue at a monthly pace of €20 billion. The Governing Council continues to expect monthly net asset purchases under the APP to run for as long as necessary to reinforce the accommodative impact of its policy rates, and to end shortly before it starts raising the key ECB interest rates. 

The Governing Council also intends to continue reinvesting, in full, the principal payments from maturing securities purchased under the APP for an extended period of time past the date when it starts raising the key ECB interest rates, and in any case for as long as necessary to maintain favourable liquidity conditions and an ample degree of monetary accommodation. 

Finally, the Governing Council will continue to provide ample liquidity through its refinancing operations. The funding obtained through the third series of targeted longer-term refinancing operations (TLTRO III) plays a crucial role in supporting bank lending to firms and households.

The Governing Council stands ready to adjust all of its instruments, as appropriate, to ensure that inflation moves towards its aim in a sustained manner, in line with its commitment to symmetry. 

The President of the ECB will comment on the considerations underlying these decisions at a press conference starting at 14:30 CET today.”


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