La European Central Bank still increases the power of his bazooka, but not so much to heat the markets. “The eurozone is facing a contraction in activity with unprecedented speed and magnitude – said Christine Lagarde, number one of the ECB, at a press conference – The GDP of the euro area could suffer a collapse of between 5% and 12% this year, depending on the duration of the contagion containment measures and the effectiveness of the policies launched to mitigate their effects on businesses and work”.
TLTRO3
At its meeting on Thursday, the Governing Council decided to cut interest rates on Tltro50 auctions by 3 basis points, the operations through which the ECB introduces liquidity into the banking system (however forcing credit institutions to use the money received to finance the real economy). The provision concerns the auctions that will be held between June 2020 and June 2021.
PEWTER
Not only. The European Central Bank has also launched a new series of long-term refinancing operations against the coronavirus emergency: they are called Pewter, an acronym for “Pandemic Emergency Longer-Term Refinancing Operations”. The Peltros, explains Frankfurt, "consist of seven additional refinancing operations that will start in May 2020 and will mature in staggered sequence between July and September 2021". They will be conducted "through a fixed rate tender procedure with full allotment, with an interest rate 25 basis points below the average rate of the main refinancing operations prevailing during the life of each Pewter".
PEPP
As regards the pep, the ECB makes it known that it is “fully prepared to increase its size as necessary and for as long as necessary”. Launched at the end of March, the "Pandemic emergency purchase program" (PEPP) is a new securities purchase program that complements quantitative easing to respond to the coronavirus emergency. The initial endowment of the PEPP is 750 billion euros, but in fact the central bank will be able to purchase public and private bonds on the secondary market without any limit on the amount or duration.
INTEREST RATES
Finally, but this was taken for granted, the ECB has maintained interest rates at an all-time low: the main rate therefore remains at zero, that on deposits at -0,50% and that on marginal loans at 0,25%.
THE ECB RETAINS LEVEL OF ACTION
In fact, the European Central Bank has moved as expected by the marketwithout forcing your hand. In this way, the Eurotower retains a margin of action to be exploited in the coming months, when the economic repercussion of the pandemic will be felt more violently.
Read the official statement of the ECB.
