Brussels, 10/03/2016 (Agence Europe) - On Thursday 10 March, the ECB announced new additional monetary policy measures aiming to facilitate access and financing conditions for economic actors. The markets, which were pleasantly surprised, immediately bounced back and the euro fell against the dollar.
“This comprehensive package will exploit the synergies between the different instruments and has been calibrated to further ease financing conditions, stimulate new credit provision and thereby reinforce the momentum of the euro area's economic recovery and accelerate the return of inflation to levels below, but close to, 2%”, said the President of the ECB, Mario Draghi.
The adoption of these measures was not taken unanimously, although the Governor of the Bundesbank did not vote due to the rotation system in place within the Governing Council. Even so, this initiative shows our “willingness to act”, Draghi stressed.
First of all, the European institution reduced its main interest rate, with effect from 16 March. The interest rate on principle refinancing operations has been brought down from 0.05% to 0.00%. The margin loan rate falls from 0.3% to 0.25% and that of the deposit facility has been reduced from -0.3% to -0.4%. “Rates will stay low for a long time, well past” our operation to buy back securities (QE or 'quantitative easing'), Draghi said. The QE operation is designed to run until March 2017 at the earliest. Even so, don't anticipate that we will reduce rates further, although of course new facts may lead us to review our position, Draghi warned.
From April onwards, the ECB has also decided to increase its 'quantitative easing' programme for the buy-back of securities, mainly public ones, from €60 to €80 billion a month. Still regarding QE, it has increased from 35% to 50% the repurchase limit of securities of international organisations and multilateral development banks that it may hold. Additionally, securities issued by non-banking businesses with the best ratings agency ratings will be included in the QE operation with effect from the third quarter of 2016. “This decision will reinforce the transmission of our share buy-back operation under real-economy financing conditions”, explained the former Governor of Banca Italia. On 4 March 2016, the ECB had bought back more than €600 billion's worth of securities under the QE programme.
Finally, firmly convinced by the success of an initial experiment aiming to prevent banking liquidity from drying up (see EUROPE 11148), the Frankfurt-based Institute has decided to launch a new targeted long-term refinancing operation ('TLTRO II'). This operation will take place in four stages (launch every month from June onwards) and will allow banks to refinance themselves from the ECB at a lower cost by borrowing securities with a maturity of four years. The operation will give banks “funding certainty at an attractive price in an environment of increasing uncertainty and of large bond redemption”, Draghi said, adding that loan growth was “still too low” in Europe. The targeted 'TLTRO II' operation will allow the ECB to grant more inexpensive loans to banks, which will lend more to the economy.
These decisions were made on the basis of the new economic forecasts available. According to the ECB, eurozone growth will be slightly lower than anticipated in December 2015: +1.4% in 2016, +1.7% in 2017 and +1.8% in 2018. Draghi referred to mainly downwards risks, including uncertainty weighing on the global economy. As regards inflation, the ECB has also reduced its previous forecasts in order to reflect the ongoing drop in oil prices. Inflation is expected to stand at 0.1% in 2016, 1.3% in 2017 and 1.6% in 2018. (Original version in French by Mathieu Bion)