ECB Boosts Support As Eurozone Shrinks At Record Pace
The European Central Bank strengthened its liquidity supportive measures as the currency bloc contracted at the sharpest pace since 1995 as most of the member states introduced coronavirus containment measures.
Following its scheduled meeting on Thursday, the Governing Council of the ECB decided to ease the conditions on the targeted longer-term refinancing operations, or TLTRO. The bank lowered the interest rate on TLTRO operations to 50 basis points below the average interest rate.
In order to support liquidity conditions, a new series of non-targeted pandemic emergency longer-term refinancing operations, or PELTRO, will be conducted from May 2020.
Further, the ECB will continue its EUR 750 billion new pandemic emergency purchase programme in a flexible manner over time, across asset classes and among jurisdictions.
Moreover, net purchases under the asset purchase programme will continue at a monthly pace of EUR 20 billion, together with the purchases under the additional EUR 120 billion temporary envelope until the end of the year.
The council said it is fully prepared to increase the quantitative easing.
The ECB left the key interest rate, which is the rate on the main refinancing operations, at record low zero, as expected.
The deposit facility rate was kept at -0.50 percent. The marginal lending facility rate was maintained at 0.25 percent.
Official data showed that the currency bloc contracted 3.8 percent sequentially in the first quarter, in contrast to a 0.1 percent rise in the fourth quarter of 2019. This was the biggest fall on record.
At the press conference in Frankfurt, ECB President Christine Lagarde said the economy will contract as much as 12 percent this year. She said the bloc is facing an economic contraction of magnitude and speed that are unprecedented in peacetime.
Carsten Brzeski, an ING economist said the decision to keep all instruments and QE unchanged showed that it first wants to take stock of all recent measures.
“It probably also wants to keep some powder dry. And, this dry powder is needed, as today’s GDP data has given us the first impression of how severe the crisis in the eurozone actually is,” Brzeski added.
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