The ECB recalibrates the bazooka. The steering committee decided to enhance pandemic QE in order to react to the crisis triggered by Covid-19 and above all to the consequences of the second wave of infections which is jeopardizing the recovery prospects of the Eurozone and the normalization of inflation.
The main changes concern instead the Pepp, the "pandemic emergency purchase Programme". Bond purchases, mainly government bonds, increased by 500 billion euros, to reach 1.850 billion. The duration of the program has also been extended, which will be extended by nine months and therefore at least until March 2022. "The current budget of the PEPP can be further recalibrated as necessary to ensure that conditions remain largely accommodating", underlined the number one of the ECB , Christine Lagarde, during the monthly press conference.
News also on third tranche of Tltro, the long-term refinancing plan through which the ECB lends money to banks by paying them an interest rate on condition that they in turn grant loans to businesses. The Governing Council decided to further recalibrate the terms of the third round of targeted longer-term refinancing operations (TLTRO III), extending by 12 months, i.e. until June 2022, the period during which more favorable terms will apply. Between June and December 2021 they will also be conducted three new auctions and 55% of the stock of loans from the previous 50% may be borrowed. Four more pandemic liquidity auctions are also planned Peltro. The duration of the series of collateral relief measures adopted by the Governing Council on 2022 and 7 April 22 will be extended until June 2020.
Confirmed net purchases under the asset purchase program (APP), which will continue at a monthly pace of €20 billion.
Both EUREP, the Eurosystem's repo facility for central banks (EUREP) and temporary swap and repo lines with non-euro area central banks were extended in March 2020.
As expected, no news on interest rates that remain unchanged: the rate on main refinancing operations at 0,00%, the rate on marginal financing operations at 0,25% and the rate on deposits at -0,5%. Rates will remain at “the current level or lower until the inflation outlook converges robustly to a level sufficiently close to, but below, 2%,” reads the note from the Central Bank.
Today's decisions are dictated by the desire to "maintain favorable financial conditions during the pandemic period, thus supporting the flow of credit to all sectors of the economy, sustaining economic activity and safeguarding price stability”.
During the traditional monthly press conference, Christine Lagarde stressed that although the rebound in activity in the third quarter was stronger than expected and the prospects for vaccines are encouraging, "the pandemic poses serious risks for the eurozone economy and for the global economy”. The number one of the ECB added that in the fourth quarter the eurozone economy will record a further decline due to the second wave, and the impact of the pandemic will be more protracted than previously anticipated.
In general, according to the projections provided by the ECB staff, the GDP of the Eurozone should close on 2020 with a decrease of 7,3% to then return to growth next year at a rate of 3,9% and continue with +4,2% in 2022 and +2,1% in 2023, the year for which a first preliminary estimate is being provided today. In the September exercise, the projections were -8,0% in 2020, +5,0% in 2021 and +3,2% in 2022.
Lagarde's words cool the European stock exchanges which during the morning traveled uncertainly, but above parity. At 15.11 Milan lost 0,79%, Madrid and Frankfurt 0,1%. Slight increase in Paris (+0,2%).
