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ECB Restarts QE – Decision of 12 September 2019

Monetary Policy Decision. At its meeting today, the ECB’s Governing Council adopted the following decisions on monetary policy:

European Central Bank

(1) The interest rate on the deposit will be reduced by 10 basis points to -0.50%. The interest rate on the main refinancing operations and the rate on the margin line of credit will remain unchanged at the current levels of 0.00% and 0.25%, respectively.

The Governing Council currently expects the ECB’s key interest rates to remain at or below their current level until it sees inflation forecast steadily approaching a level close enough to but below 2% within its forecast horizon, and this convergence is consistently reflected in underlying inflation dynamics.

(2) The net purchases will resume under the Governing Board’s (APP) Asset Purchase Program on a monthly basis starting November 1 at € 20 billion. The Governing Council expects them to work as long as it takes to increase the trade-off impact of their policy rates, and will end shortly before it starts raising key ECB interest rates.

(3) Reinvestment of principal payments from maturing securities acquired under the APP will continue in full for an extended period of time after the date on which the Governing Council begins to raise key ECB interest rates, and in any case until, for now, it is necessary to maintain favorable liquidity conditions and a sufficient degree of cash placement.

(4) The terms of the new Series of Quarterly Targeted Long-Term Refinancing Operations (TLTRO III) will be modified to maintain favorable bank lending conditions, ensure a smooth transfer of monetary policy, and further support an adaptive monetary policy stance. The interest rate on each transaction will now be set at the average rate applied in the major refinancing operations of the Eurosystem during the term of the respective TLTRO. For banks whose acceptable net lending exceeds the benchmark, the rate applied to TLTRO III transactions will be lower and could be as low as the average deposit facility interest rate prevailing over the life of the transaction. The maturity of transactions will be extended from two to three years.

(5) In order to support the transfer of monetary policy on the basis of banks, a two-tier system of reserve remuneration will be introduced, within which part of the excess liquidity of banks will be exempted from the negative rate on deposits.
Selected press releases with more details on the action taken by the Governing Council will be issued this afternoon at 15:30 CET.

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