At its April 14 meeting, the Governing Council of the European Central Bank (ECB) considered that data received since its last meeting reinforces its expectation that net asset purchases under its purchase program of assets (APP) are expected to close in the third quarter.
Going forward, the ECB’s monetary policy will depend on forthcoming data and the evolution of the Governing Council’s assessment of the outlook.
In the current conditions of high uncertainty, the Governing Council will maintain discretion, gradualness and flexibility in the conduct of monetary policy. The Governing Council will take all necessary measures to fulfill the ECB’s mandate to pursue price stability and help preserve financial stability.
The Board of Governors took the following decisions:
Asset Purchase Program (APP)
Monthly net purchases under the APP will amount to €40 billion in April, €30 billion in May and €20 billion in June.
The Board of Governors considered that the data received since its last meeting reinforces its expectation that the net asset purchases under the APP should be concluded in the third quarter. The calibration of net purchases for the third quarter will be data dependent and will reflect changes in the Governing Council’s assessment of the outlook.
The Governing Council also intends to continue to fully reinvest principal payments from maturing securities purchased under the APP for an extended period after the date on which it begins to raise policy interest rates. of the ECB and, in any case, for as long as necessary to maintain favorable liquidity conditions and a high degree of monetary accommodation.
Key ECB interest rates
The interest rate on the main refinancing operations (MRO) and the interest rates on the marginal lending facility and the deposit facility will remain unchanged at zero percent, 0.25 percent and -0.50 percent respectively.
Any adjustment to the key ECB interest rates will take place some time after the end of the Governing Council’s net purchases under the APP and will be gradual. The path of the key ECB interest rates will continue to be determined by the forward guidance of the Governing Council and its strategic commitment to stabilize inflation at 2% over the medium term.
Accordingly, the Governing Council expects the key ECB interest rates to remain at their current levels until it sees inflation reach 2%, well before the end of its projection and sustainably for the rest of the projection horizon, and it considers that the increase in underlying inflation has been achieved sufficiently advanced to be compatible with a stabilization of inflation at 2% in the medium term.
Pandemic Emergency Purchase Program (PEPP)
The Governing Council intends to reinvest the principal payments of maturing securities purchased under the PEPP until at least the end of 2024. In any case, the future roll-off of the PEPP portfolio will be managed so as to avoid any interference with the appropriate monetary policy stance.
In the event of further pandemic-related market fragmentation, PEPP reinvestments can be flexibly adjusted across time, asset classes and jurisdictions at any time.
This could include the purchase of bonds issued by Greece in addition to rollovers to avoid a disruption in purchases in that jurisdiction, which could harm the transmission of monetary policy to the Greek economy as the she is still recovering from the fallout of the pandemic. Net purchases under the PEPP could also be resumed, if necessary, to counter negative shocks related to the pandemic.
Refinancing operations
The Governing Council will continue to monitor banks’ funding conditions and ensure that the maturity of operations under the third series of targeted longer-term refinancing operations (TLTRO-III) does not impede good transmission of its monetary policy.
The Governing Council will also regularly assess how targeted lending operations contribute to the stance of its monetary policy. As announced, he expects the special conditions applicable under TLTRO-III to end in June this year. The Governing Council will also assess the appropriate calibration of its two-tier reserve remuneration system so that the negative interest rate policy does not limit banks’ intermediation capacity in an environment of large excess liquidity.
The Governing Council stands ready to adjust all of its instruments within its mandate, incorporating flexibility where necessary, to ensure that inflation stabilizes at its 2% target over the medium term.
The pandemic has shown that, in crisis conditions, flexibility in the design and conduct of asset purchases has helped counter the mistransmission of monetary policy and made the Governing Council’s efforts to achieve its goal more effective. goal. Within the mandate of the Governing Council, under stress conditions, flexibility will remain an element of monetary policy whenever threats to the transmission of monetary policy jeopardize the achievement of price stability.
ECB monetary operations
On April 11, the ECB announced the seven-day MRO. The deal was completed on April 12 and attracted bids from eligible eurozone counterparties of €540 million, €132 million more than the previous week. The amount was fully allocated at a fixed rate equivalent to the prevailing MRO rate of zero percent, in line with current ECB policy.
On April 13, the ECB conducted the seven-day US dollar funding operation through secured loans in conjunction with the US Federal Reserve. This operation attracted bids of $236 million, which were fully allotted at a fixed rate of 0.57%.
Internal market for Treasury bills
In the domestic primary treasury bill market, the Treasury issued a tender for the 91-day and 182-day bills for settlement value on April 14, maturing on July 14 and October 13, respectively.
Bids of €51.50 million were submitted for the 91-day bills, with the Treasury accepting €46.50 million, while bids of €51.50 million were also submitted for the bills 182 days, the Treasury accepting 11.50 million euros. Given that €33.70m of bonds matured during the week, the outstanding balance of Treasury bills increased by €24.30m to €779m.
The yield on the 91-day bill auction was -0.294%, increasing by 3.3 basis points from offers of similar duration issued on April 7, representing an offer price of €100.0744 per 100 € nominal value. The yield on the 182-day note auction was -0.317%, increasing by 0.9 basis points from offers of similar duration issued on April 7, representing an offer price of €100.1605 for €100 face value.
During this week, there were no transactions on the Malta Stock Exchange.
Today, the Treasury will launch a tender for the 91- and 182-day notes maturing on July 21 and October 20 respectively.
The report is prepared by the Office of Monetary Operations and Collateral Management of the Central Bank of Malta.
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