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ECB Boosts Emergency Asset Purchases Amid Economic Slump Due To Covid-19

ecb 102418 04jun20 lt

The European Central Bank on Thursday increased the size of its emergency asset purchase programme and maintained its commitment to ease policy stance further if needed, as the euro area faces its worst recession in decades due to the impact of the coronavirus, or Covid-19, pandemic.

The central bank left its key interest rates unchanged as 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," the central bank said.

The Governing Council decided to increase the size of the pandemic emergency purchase programme, or PEPP, by EUR 600 billion to a total EUR 1,350 billion, the bank said in a statement.

This expansion will further ease the general monetary policy stance and support funding conditions in the real economy, especially for businesses and households, the ECB said.

The central bank said the asset purchases under the PEPP will continue to be conducted in a flexible manner across asset classes and among jurisdictions.

"This allows the Governing Council to effectively stave off risks to the smooth transmission of monetary policy," the ECB said.

The minutes of the April policy session had shown that policymakers saw the PEPP, worth EUR 750 billion when announced in March, was essential and limited the likelihood of a "self-reinforcing downward spiral".

The April minutes had signaled that policymakers were willing to boost the size of the PEPP if they judged, based on data prior to the June meeting, that economic stimulus was falling short.

On Thursday, the ECB also extended the horizon for net purchases under the PEPP to at least the end of June 2021. Further, the bank said the Governing Council will conduct net asset purchases under the PEPP until it judges that the coronavirus crisis phase is over.

Proceeds from the maturing securities bought under the PEPP will be reinvested until at least the end of 2022, the ECB said, adding that the future roll-off of the PEPP portfolio will be managed to avoid interference with the appropriate monetary stance.

The central bank retained the size of the monthly purchases under its asset purchase programme (APP) at EUR 20 billion, together with the additional EUR 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 bank said, retaining its forward guidance.

Reinvestments of proceeds from maturing securities bought 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 favorable liquidity conditions and an ample degree of monetary accommodation, the central bank said.

The ECB left the main refinancing rate unchanged at 0.00 percent, the deposit facility rate at -0.50 percent and the marginal lending facility rate at 0.25 percent.

"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 percent within its projection horizon, and such convergence has been consistently reflected in underlying inflation dynamics," the bank said, retaining its forward guidance.

ECB President Christine Lagarde is set to hold the post-decision press conference at 8.30 am ET when she will explain the rationale behind the latest policy decision and present the latest set of ECB staff macroeconomic projections.

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