What changed in the European Central Bank statement — 4 June 2020

European Central Bank held policy at -0.50%. The ECB delivered a substantial expansion of its pandemic emergency purchases, increasing the PEPP envelope by €600bn and extending its horizon, while keeping rates unchanged. This marks an unambiguous dovish shift in policy action, reinforcing the central bank's commitment to support the economy through the crisis.

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 delivered a substantial expansion of its pandemic emergency purchases, increasing the PEPP envelope by €600bn and extending its horizon, while keeping rates unchanged. This marks an unambiguous dovish shift in policy action, reinforcing the central bank's commitment to support the economy through the crisis.

Inflation — More dovish. Current document introduces a new justification for stimulus citing pandemic-related downward revision to inflation, which was absent in the prior document.
Labour Market — Little changed. No labour market passages in either document, so no shift.

Previous wording

the Governing Council decided to reduce the interest rate on TLTRO III operations during the period from June 2020 to June 2021 to 50 basis points below the average interest rate on the Eurosystem’s main refinancing operations prevailing over the same period. Moreover, for counterparties whose eligible net lending reaches the lending performance threshold, the interest rate over the period from June 2020 to June 2021 will now be 50 basis points below the average deposit facility rate prevailing over the same period.
rate path: Substantial further easing of TLTRO III terms; effective rate can go as low as -1% for banks meeting lending thresholds.

A new series of non-targeted pandemic emergency longer-term refinancing operations (PELTROs) will be conducted to support liquidity conditions in the euro area financial system and contribute to preserving the smooth functioning of money markets by providing an effective liquidity backstop. They will be carried out as fixed rate tender procedures with full allotment, with an interest rate that is 25 basis points below the average rate on the main refinancing operations prevailing over the life of each PELTRO.
rate path: New liquidity backstop at negative rates reinforces accommodative stance.

These purchases will continue to be conducted in a flexible manner over time, across asset classes and among jurisdictions.
rate path: Flexibility allows ECB to adjust allocation as needed, key for market expectations.

The Governing Council will conduct net asset purchases under the PEPP until it judges that the coronavirus crisis phase is over, but in any case until the end of this year.
rate path: Sets minimum duration for PEPP, with open-ended condition on crisis phase.

net purchases under the asset purchase programme (APP) will continue at a monthly pace of €20 billion, together with the purchases under the additional €120 billion temporary envelope until the end of the year.
rate path: Continued APP at steady pace alongside PEPP maintains significant QE footprint.

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.
rate path: Rate forward guidance conditional on inflation convergence; explicitly allows for further rate cuts.

The Governing Council is fully prepared to increase the size of the PEPP and adjust its composition, by as much as necessary and for as long as needed.
rate path: Clear readiness to scale up QE, reflecting downside risks and commitment to action.

Current wording

The envelope for the pandemic emergency purchase programme (PEPP) will be increased by €600 billion to a total of €1,350 billion.
rate path: Larger-than-expected PEPP increase signals strong stimulus.

The horizon for net purchases under the PEPP will be extended to at least the end of June 2021.
rate path: Prolonged asset purchase commitment supports markets.

In any case, the Governing Council will conduct net asset purchases under the PEPP until it judges that the coronavirus crisis phase is over.
rate path: Open-ended conditionality tied to crisis ensures ongoing support.

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.
rate path: Rate path conditional on inflation recovery, not time-based.

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.
rate path: Rates on hold, as widely expected.

The Governing Council continues to stand ready to adjust all of its instruments, as appropriate, to ensure that inflation moves towards its aim in a sustained manner, in line with its commitment to symmetry.
rate path: Strong easing bias with readiness to use all tools.

The purchases will continue to be conducted in a flexible manner over time, across asset classes and among jurisdictions.
rate path: Flexibility allows targeted response to market stress.

In response to the pandemic-related downward revision to inflation over the projection horizon, the PEPP expansion will further ease the general monetary policy stance, supporting funding conditions in the real economy, especially for businesses and households.
inflation: Inflation downgrade justifies increased stimulus.

Official statement

4 June 2020

Monetary policy decisions

At today’s meeting the Governing Council of the ECB took the following monetary policy decisions:

(1) The envelope for the pandemic emergency purchase programme (PEPP) will be increased by €600 billion to a total of €1,350 billion. In response to the pandemic-related downward revision to inflation over the projection horizon, the PEPP expansion will further ease the general monetary policy stance, supporting funding conditions in the real economy, especially for businesses and households. The purchases will continue to be conducted in a flexible manner over time, across asset classes and among jurisdictions. This allows the Governing Council to effectively stave off risks to the smooth transmission of monetary policy.

(2) The horizon for net purchases under the PEPP will be extended to at least the end of June 2021. In any case, the Governing Council will conduct net asset purchases under the PEPP until it judges that the coronavirus crisis phase is over.

(3) The maturing principal payments from securities purchased under the PEPP will be reinvested until at least the end of 2022. In any case, the future roll-off of the PEPP portfolio will be managed to avoid interference with the appropriate monetary stance.

(4) Net purchases under the asset purchase programme (APP) will continue at a monthly pace of €20 billion, together with the purchases under the additional €120 billion temporary envelope until the end of the year. The Governing Council continues to expect monthly net asset purchases under the APP 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.

(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.

(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 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.

The Governing Council continues to stand ready to adjust all of its instruments, as appropriate, to ensure that inflation moves towards its aim in a sustained 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 14:30 CET today.

Background reading

Cadence's comparison is generated from the official documents. Read the methodology.