What changed in the European Central Bank statement — 16 July 2020

European Central Bank held policy at -0.50%. The July statement holds the line after June's massive PEPP expansion, signalling a pause in additional easing while maintaining the accommodative stance. Next decision likely to remain on hold unless inflation outlook deteriorates further.

Decision

Decision: hold
Deposit facility rate: -0.50%

Going into the decision

On the day, the committee read as dovish — -2.0 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 July statement holds the line after June's massive PEPP expansion, signalling a pause in additional easing while maintaining the accommodative stance. Next decision likely to remain on hold unless inflation outlook deteriorates further.

Inflation — Little changed. Inflation assessment remains dovish with reference to pandemic-related downward shift, but no new downgrade relative to June.
Labour Market — Little changed. Labour market not addressed in either document; no signal.
Rate Path — Little changed. Rate path language maintained: PEPP envelope and horizon unchanged, no additional easing measures, but continued commitment to accommodative stance.
Balance Sheet — Little changed. Balance sheet guidance carries over flexibility and reinvestment commitment; no new expansion or tightening signal.

Previous 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.

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.

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.

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 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 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 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.

Current 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.
rate path: Rate decision unchanged, as expected; no surprise.

These purchases contribute to easing the overall monetary policy stance, thereby helping to offset the pandemic-related downward shift in the projected path of inflation.
inflation: Acknowledges pandemic has pushed inflation lower, justifying ongoing QE.

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: Standard pledge; signals willingness to do more if needed, but no urgency.

The Governing Council will continue its purchases under the pandemic emergency purchase programme (PEPP) with a total envelope of €1,350 billion.
rate path: Full PEPP envelope maintained, signaling continued aggressive stimulus.

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: Explicitly leaves door open to rate cuts, tying normalization to robust inflation convergence.

The purchases will continue to be conducted in a flexible manner over time, across asset classes and among jurisdictions.
rate path: Flexibility allows the ECB to address fragmentation risks and adjust as needed.

The Governing Council will conduct net asset purchases under the PEPP until at least the end of June 2021 and, in any case, until it judges that the coronavirus crisis phase is over.
rate path: Longer-than-expected horizon (June 2021) with open-ended conditionality, highly accommodative.

The Governing Council will reinvest the principal payments from maturing securities purchased under the PEPP until at least the end of 2022.
rate path: Reinvestment commitment extends well beyond purchase period, maintaining accommodation.

Official statement

16 July 2020

Monetary policy decisions

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

(1) 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.

(2) The Governing Council will continue its purchases under the pandemic emergency purchase programme (PEPP) with a total envelope of €1,350 billion. These purchases contribute to easing the overall monetary policy stance, thereby helping to offset the pandemic-related downward shift in the projected path of inflation. 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. The Governing Council will conduct net asset purchases under the PEPP until at least the end of June 2021 and, in any case, until it judges that the coronavirus crisis phase is over. The Governing Council will reinvest the principal payments from maturing securities purchased under the PEPP 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 policy stance.

(3) 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. 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.

(4) The Governing Council will also continue to provide ample liquidity through its refinancing operations. In particular, the latest operation in the third series of targeted longer-term refinancing operations (TLTRO III) has registered a very high take-up of funds, supporting bank lending to firms and households.

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.