AGI – The ECB leaves interest rates steady and confirms “orientation very accommodating of its monetary policy“In particular, the interest rates on the main refinancing operations, the marginal lending facility and the deposits with the central bank will remain unchanged at 0.00%, 0.25% and -0.50% respectively.
The Governing Council, reads the note released at the end of the meeting, “expects the reference interest rates of the ECB to remain at levels equal to or lower than the current ones. until it sees the inflation outlook converging firmly on a level sufficiently close to but less than 2% in its projection horizon and this convergence will not be reflected consistently in the dynamics of underlying inflation “.
The Governing Council will continue to conduct net asset purchases under the Pandemic Emergency Purchase Program (Pepp), with a total budget of € 1,850 billion, at least until the end of March 2022 and, “in any case, until the critical phase linked to the coronavirus is considered over.
Based on a joint assessment of financing conditions and inflation prospects, the Governing Council expects net purchases under Pepp to continue to be conducted at a significantly faster pace in the next quarter than in the first months of the year. “
The ECB underlines the note, “will conduct purchases in a flexible manner based on market conditions, in order to avoid a tightening of financing conditions incompatible with the contrast of the downward effect of the pandemic on the predicted inflation profile. In addition, the flexibility of purchases over time, across asset classes and across countries will continue to support the orderly transmission of monetary policy. If favorable financing conditions can be maintained through asset purchase streams that do not deplete the budget over the net purchase horizon of the Pepp, it will not be necessary to utilize the full envelope. Likewise, this can be recalibrated, if required, to preserve favorable financing conditions that contribute to counteract the negative shock of the pandemic on inflation“.
The Governing Council will continue to reinvest the principal redeemed on maturing Pepp securities until at least the end of 2023. In any event, the future reduction of the Pepp portfolio it will be managed in such a way as to avoid interference with the appropriate monetary policy stance. Net purchases under the Asset Purchase Program (Paa) will continue at a monthly pace of € 20 billion. The Governing Council continues to expect that monthly net asset purchases under the PAA will continue as long as necessary to reinforce the accommodative impact of its policy rates and will end shortly before the ECB begins to raise policy rates.
The ECB also intends to continue to reinvest, in full, the principal repaid on the bonds maturing under the PAA for an extended period of time after the date on which it will begin to raise the reference interest rates of the ECB, and in any case until it will be necessary to maintain favorable liquidity conditions and a large degree of monetary accommodation. Finally, the Governing Council will continue to provide abundant liquidity through its refinancing operations.
Liquidity obtained through the third series of targeted longer-term refinancing operations it plays a crucial role in supporting bank lending to businesses and households. The Governing Council, the note concludes, “is ready to adjust all its tools, where appropriate, to ensure that inflation is steadily approaching the target level, in line with its commitment to symmetry.