Tuesday, August 16

The ECB will finalize its purchases related to the pandemic in March

The Governing Council considers that progress in the economic recovery and towards its medium-term inflation target will allow the pace of its asset purchases to be reduced step by step during the coming quarters. But note that “monetary accommodation is still needed for inflation to stabilize at the inflation target of 2% in the medium term. Given the current uncertainty, the Governing Council must maintain flexibility and optionality in the conduct of monetary policy. “

Pandemic Emergency Purchase Program (PEPP)

In the first quarter of 2022, the Governing Council expects to make asset purchases under the pandemic emergency purchase program (PEPP) at a slower pace than in the previous quarter. It will suspend asset purchases under the PEPP at the end of March 2022. The Governing Council decided to extend the reinvestment horizon of the PEPP. It now intends to reinvest the principal payments on maturing securities acquired under the PEPP until at least the end of 2024. In any event, the future roll-off of the PEPP portfolio will be managed to avoid interference with proper guidance from monetary policy.

The pandemic has shown that, under stress conditions, flexibility in the design and conduct of asset purchases has helped to counteract the poor transmission of monetary policy and has made efforts to achieve the Governing Council’s goal more effective. . Within our mandate, under stress conditions, flexibility will continue to be an element of monetary policy as long as threats to the transmission of monetary policy threaten the achievement of price stability.

In particular, in the event of further pandemic-related market fragmentation, PEPP reinvestments can be flexibly adjusted across time, asset classes, and jurisdictions at any time. This could include the purchase of bonds issued by the Hellenic Republic on top of refund refinances to avoid a disruption of purchases in that jurisdiction, which could harm the transmission of monetary policy to the Greek economy while it is still recovering from the aftermath of the pandemic. Net purchases under the PEPP could also resume, if necessary, to counter negative shocks related to the pandemic.

Asset purchase program (APP)

In line with a gradual reduction in asset purchases and to ensure that the monetary policy stance remains consistent with the stabilization of inflation in its medium-term objective, the Governing Council decided on a monthly net purchase rate of € 40 billion in the second quarter and € 30 billion in the third quarter under the Asset Purchase Program (APP). As of October 2022, the Governing Council will maintain net asset purchases under the APP at a monthly rate of 20,000 million of euros for as long as necessary to reinforce the accommodative impact of its official interest rates. The Governing Council expects net purchases to end shortly before key ECB interest rates begin to hike. The Governing Council also intends to continue to reinvest, in full, the principal payments on maturing securities acquired under the APP for an extended period of time after the date the interest rates begin to rise. key interest of the ECB and, in any case, for as long as necessary. necessary to maintain favorable liquidity conditions and a large degree of monetary accommodation.

Key ECB interest rates

The interest rate on the main refinancing operations and the interest rates on the marginal credit facility and the deposit facility will remain unchanged at 0%, 0.25% and -0.50%, respectively. In support of its symmetric inflation target of 2% and in line with its monetary policy strategy, the Governing Council expects the ECB’s key interest rates to remain at or below their current levels until it sees inflation reach 2% long before the end of your screening. horizon and on a lasting basis for the rest of the projection horizon, and considers that the progress made in core inflation is sufficiently advanced to be consistent with the stabilization of inflation at 2% in the medium term. This may also imply a transitional period in which inflation is moderately above the target.

Refinancing operations

The Governing Council will continue to monitor bank financing conditions and ensure that the maturity of TLTRO III’s operations does not hinder the smooth transmission of its monetary policy. The Governing Council will also periodically assess the contribution of specific lending operations to the stance of its monetary policy. As announced, it expects the special conditions applicable under TLTRO III to end in June next year. The Governing Council will also assess the appropriate calibration of its two-tier system for the compensation of reserves, so that the negative interest rate policy does not limit the intermediation capacity of banks in an environment of abundant excess liquidity.


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