What changed in the European Central Bank statement —
European Central Bank held policy at -0.50%. The ECB maintains its key rates but delivers substantial additional easing through QE and TLTROs in response to COVID-19 risks, marking a clear dovish shift. For the next decision, this signals a strong accommodative stance and willingness to deploy further measures if economic conditions deteriorate.
Decision
- Decision: hold
- Deposit facility rate: -0.50%
Going into the decision
On the day, the committee read as dovish — -1.9 on a scale where +3 means every member wants higher rates and −3 means every member wants cuts.
Reconstructed from official member remarks published before the decision date. 4 of 27 active members had stored official remarks.
What changed
The ECB maintains its key rates but delivers substantial additional easing through QE and TLTROs in response to COVID-19 risks, marking a clear dovish shift. For the next decision, this signals a strong accommodative stance and willingness to deploy further measures if economic conditions deteriorate.
- Inflation — Little changed. No material change in inflation assessment; both documents reference the same inflation convergence condition in forward guidance.
- Labour Market — Little changed. Labour market not mentioned in either set of key passages; no shift.
- Rate Path — More dovish. Rates held unchanged but current document adds a temporary €120 billion QE envelope and cuts TLTRO III rates by 25bp, signalling increased accommodation beyond the prior guidance.
- Balance Sheet — More dovish. Current document expands asset purchases significantly with a new €120 billion envelope and introduces targeted longer-term operations, a clear dovish shift from prior steady APP pace.
Previous wording
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 will continue to make net purchases under its asset purchase programme (APP) at a monthly pace of €20 billion.
The Governing Council expects them to run for as long as necessary to reinforce the accommodative impact of its policy rates, and to end shortly before it starts raising the key ECB interest rates.
The Governing Council intends to continue reinvesting, in full, the principal payments from maturing securities purchased under the APP for an extended period of time past the date when it starts raising the key ECB interest rates, and in any case for as long as necessary to maintain favourable liquidity conditions and an ample degree of monetary accommodation.
The Governing Council also decided to launch a review of the ECB’s monetary policy strategy.
Current wording
the interest rate on these TLTRO III operations will be 25 basis points below the average rate applied in the Eurosystem’s main refinancing operations. For counterparties that maintain their levels of credit provision, the rate applied in these operations will be lower, and, over the period ending in June 2021, can be as low as 25 basis points below the average interest rate on the deposit facility.
A temporary envelope of additional net asset purchases of €120 billion will be added until the end of the year, ensuring a strong contribution from the private sector purchase programmes.
Reinvestments of the principal payments from maturing securities purchased under the APP will continue, in full, for an extended period of time past the date when the Governing Council starts raising the key ECB interest rates, and in any case for as long as necessary to maintain favourable liquidity conditions and an ample degree of monetary accommodation.
Although the Governing Council does not see material signs of strains in money markets or liquidity shortages in the banking system, these operations will provide an effective backstop in case of need.
These operations will support bank lending to those affected most by the spread of the coronavirus, in particular small and medium-sized enterprises.
Official statement
12 March 2020
Monetary policy decisions
At today’s meeting the Governing Council decided on a comprehensive package of monetary policy measures:
(1) Additional longer-term refinancing operations (LTROs) will be conducted, temporarily, to provide immediate liquidity support to the euro area financial system. Although the Governing Council does not see material signs of strains in money markets or liquidity shortages in the banking system, these operations will provide an effective backstop in case of need. They will be carried out through a fixed rate tender procedure with full allotment, with an interest rate that is equal to the average rate on the deposit facility. The LTROs will provide liquidity at favourable terms to bridge the period until the TLTRO III operation in June 2020.
(2) In TLTRO III, considerably more favourable terms will be applied during the period from June 2020 to June 2021 to all TLTRO III operations outstanding during that same time. These operations will support bank lending to those affected most by the spread of the coronavirus, in particular small and medium-sized enterprises. Throughout this period, the interest rate on these TLTRO III operations will be 25 basis points below the average rate applied in the Eurosystem’s main refinancing operations. For counterparties that maintain their levels of credit provision, the rate applied in these operations will be lower, and, over the period ending in June 2021, can be as low as 25 basis points below the average interest rate on the deposit facility. Moreover, the maximum total amount that counterparties will henceforth be entitled to borrow in TLTRO III operations is raised to 50% of their stock of eligible loans as at 28 February 2019. In this context, the Governing Council will mandate the Eurosystem committees to investigate collateral easing measures to ensure that counterparties continue to be able to make full use of the funding support.
(3) A temporary envelope of additional net asset purchases of €120 billion will be added until the end of the year, ensuring a strong contribution from the private sector purchase programmes. In combination with the existing asset purchase programme (APP), this will support favourable financing conditions for the real economy in times of heightened uncertainty.
The Governing Council continues to expect net asset purchases to run for as long as necessary to reinforce the accommodative impact of its policy rates, and to end shortly before it starts raising the key ECB interest rates.
(4) 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 the key ECB interest rates to remain at their present or lower levels until it has seen the inflation outlook robustly converge to a level sufficiently close to, but below, 2% within its projection horizon, and such convergence has been consistently reflected in underlying inflation dynamics.
(5) Reinvestments of the principal payments from maturing securities purchased under the APP will continue, in full, for an extended period of time past the date when the Governing Council starts raising the key ECB interest rates, and in any case for as long as necessary to maintain favourable liquidity conditions and an ample degree of monetary accommodation.
Further details on the precise terms of the new operations will be published in dedicated press releases this afternoon at 15:30 CET.
The President of the ECB will comment on the considerations underlying these decisions at a press conference starting at 14:30 CET today.
European Central Bank
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