ECB announces latest monetary policy decision – June 4, 2020
- Previous decision (April 30)
- PEPP announcement (March 18)
- Deposit facility rate -0.50%
- Principal refinancing rate 0.00%
- 0.25% marginal lending facility
- Adds 600 billion euros to PEPP and extends its program until June 2021 at least
- Says that he will make PEPP purchases flexibly
- Says rates will stay at current or lower levels until they approach the inflation target
- Reaffirms that it is ready to adjust all instruments as appropriate
- Expects QE to operate as long as necessary to enhance the impact of accommodative rates
The outlook is pretty much the same, but the ECB has certainly met expectations for PEPP.
Essentially, this shows that they are determined to continue the economic recovery by increasing the program by € 600 billion (the forecast was € 500 billion) and extending it until the middle of next year. The ECB did not go so far to include junk bonds in the program.
The euro was higher on the decision made here, with the EUR / USD now rising from 1.1200 to 1.1240 and the EUR / GBP also rising from 0.8940 to 0.8955.
The full statement from the ECB:
At today’s meeting, the Governing Council of the ECB has taken the following monetary policy decisions:
(1) The envelope for the pandemic emergency purchasing program (PEPP) will be increased by 600 billion euros for a total of 1,350 billion euros. In response to the downward revision of inflation linked to the pandemic over the projection horizon, the expansion of the PEPP will further soften the general stance of monetary policy, supporting financing conditions in the economy real, especially for businesses and households. Purchases will continue to be made flexibly over time, between asset classes and between jurisdictions. This allows the Governing Council to effectively avert the risks of a smooth transmission of monetary policy.
(2) The horizon for net PEPP purchases will be extended until at least the end of June 2021. In any event, the Board of Governors will proceed to net purchases of PEPP assets until ‘he judges that the coronavirus crisis phase is over.
(3) Payments of principal maturing on securities purchased under the PEPP will be reinvested until at least the end of 2022. In any event, the future deployment of the PEPP portfolio will be managed so as to avoid any interference with the appropriate monetary orientation.
(4) Net purchases under the asset purchase program (APP) will continue at a monthly rate of 20 billion euros, as well as purchases under the additional temporary envelope of 120 billion euros. euros until the end of the year. The Governing Council continues to expect monthly net asset purchases under the APP to continue as long as necessary to reinforce the accommodative impact of its key rates and to end shortly before start raising key rates at the ECB.
(5) Reinvestments of the main payments of maturing securities purchased under the APP will continue in full for an extended period after the date on which the Governing Council begins to raise the key ECB interest rates, and in any case as long as necessary to maintain favorable liquidity conditions and a large degree of monetary adjustment.
(6) 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 key ECB interest rates to remain at current or lower levels until it has seen the inflation outlook vigorously converge to a level close enough but below 2% in its projection horizon, and this convergence has always been reflected in the dynamics of underlying inflation.
The Governing Council remains ready to adjust all its instruments, as appropriate, to bring inflation closer to its target in a sustainable 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 2.30 p.m. CET today.