La ECB leave rates unchanged, but boost Quantitative Easing by allocating others 120 billion euros to purchase public and private securities by the end of 2020 (today the pace is 20 billion a month). In addition, new Ltro and Tltro will arrive, ie auctions that will allow banks to confiscate liquidity long-term and at super-subsidized conditions: part of these resources (that relating to the TLTROs) will necessarily be allocated to the direct financing of small and medium-sized enterprises. These, in summary, are the measures launched by the European Central Bank to deal with the economic crisis triggered by the coronavirus Covid19 pandemic.
THE REACTION OF THE MARKETS
The package of interventions was evidently judged insufficient by the markets, which immediately started to fall again immediately after the arrival of the news from Frankfurt. Early afternoon Milano comes to lose more than 8,4%, in line with Paris (-8,3%). Also in the abyss Frankfurt (-7,9%) And London (-7,15%). It's no better at Wall Street, which also discounts the pirouette with which Trump decided to interrupt US-EU air traffic. At the opening, the Dow Jones loses 5,9%, while theS&P 500 leaves 4,9% in the field. Nasdaq -4,4%.
THE MEASURES OF THE ECB
In detail, the liquidity auctions lter they will be realized at an interest rate equal to the average rate on deposits (today at -0,50%): in fact, therefore, the banks will not pay any interest, but will be paid by the ECB to collect money.
The conditions envisaged for the auctions are even more favourable targeted (More) already envisaged until July 2021: the interest rate will be 25 basis points lower than the reference rate (which is currently at zero), which may however fall up to 25 basis points below the deposit rate (today -0,50%) for the banks that will maintain their level of loans. Lenders will also be able to request amounts up to half of their loan portfolio. Not only that: the ECB has also cut rates on TTLTs already disbursed, stating that this will help the flow of credit to medium and small businesses most in difficulty with the coronavirus.
As for the Qe, the monthly increase in the pace of purchases is worth just over 13 billion euros. This expansion will see a "strong contribution" from private sector asset purchases.
Finally, interest rates remain at their lowest: zero on major refinancing, 0,25% on marginal transactions and -0,50% on deposits.
[Laws ECB statement]
LAGARDE: “GOVERNMENTS DECIDE QUICKLY”
However, these measures alone will not be enough: for this reason "governments must take timely decisions to mitigate the impact of the coronavirus on the economy - the number one of the ECB said at a press conference, Christine Lagarde – we need an ambitious and coordinated budgetary policy to protect companies and workers who are at risk right now”.
Lagarde went on to add that “The spread of the coronavirus is a major shock to the outlook for the global economy and the eurozone, leading to marked volatility. Even if it is temporary, by its nature it will have a significant impact on economic activity, damage supply chains and reduce domestic and foreign demand, especially given the containment measures. Furthermore, the high level of uncertainty damages the climate of confidence and the propensity to invest”.
“WE ARE NOT HERE TO CLOSE THE SPREADS”
The stock market crash worsened after Lagarde said these words: “We will be using all the flexibility on the coronavirus crisis, but we are not here to close the spreads. This is not the function or the mission of the ECB, there are other tools and other actors for interventions on these aspects". After that, the yield differential between the BTP and the Bund closed at 261 basis points.
HARD REACTION OF MATTARELLA
The President of the Republic, Sergio Mattarella, replied with a very harsh note in form and substance, unprecedented for institutional relations of this level:
