New ECB monetary policy decisions

The Russian invasion of Ukraine is a turning point for Europe. The Governing Council expresses its unconditional support for the people of Ukraine. The Governing Council will ensure adequate liquidity conditions and implement the sanctions agreed by the European Union and European governments. It will also take all necessary measures to fulfil the price stability mandate entrusted to the ECB and to safeguard financial stability.

Asset Purchase Program (APP)

On the basis of its updated assessment, and taking into account the uncertain environment, the Governing Council today revised the purchase plan under its APP for the coming months. Monthly net purchases under the APP will amount to €40 billion in April, €30 billion in May and €20 billion in June. The calibration of net purchases for the third quarter will depend on the data and will reflect the evolution of its assessment of the outlook. If new data support the expectation that the medium-term inflation outlook will not weaken even after the end of its net asset purchases, the Governing Council will conclude net asset purchases under the APP in the third quarter. Should the medium-term inflation outlook change, and should financing conditions be inconsistent with continued progress towards our 2% target, the Governing Council stands ready to review its net asset purchase plan, both in terms of amount and duration.

The Governing Council also plans to continue to fully reinvest the principal amount of securities purchased under the APP as they mature for an extended period after the date on which key ECB interest rates begin to rise and, in any event, for as long as is necessary to maintain favorable liquidity conditions and a broad degree of monetary accommodation.

ECB interest rates

The interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility will remain unchanged at 0.00%, 0.25% and -0.50%, respectively.

Any adjustment of the key ECB interest rates will take place some time after the end of our net purchases under the APP and will be gradual. The path of key ECB interest rates will continue to be determined by the Governing Council’s forward guidance on the monetary policy stance and by its strategic commitment to stabilize inflation at 2% over the medium term. Accordingly, the Governing Council expects the key ECB interest rates to continue at their current levels until it sees inflation at 2% well before the end of its projection horizon and durably over the remainder of the projection horizon, and considers that the progress made in underlying inflation is sufficiently advanced to be consistent with a stabilization of inflation at 2% over the medium term.

Pandemic Emergency Purchase Program (PEPP).

In the first quarter of 2022, the Governing Council is making net asset purchases under the PEPP at a slower pace than in the previous quarter. It will end net asset purchases under the PEPP at the end of March 2022.

The Governing Council plans to reinvest the principal of maturing securities purchased under the PEPP until at least the end of 2024. In any case, the future wind-down of the PEPP portfolio will be managed in a way that avoids interference with the appropriate monetary policy stance.

The pandemic has shown that, under stressed conditions, flexibility in the design and conduct of asset purchases has helped to counteract difficulties in the transmission of monetary policy and has made the Governing Council’s efforts to achieve its objective more effective. Within the Governing Council’s mandate, under stressed conditions, flexibility will remain an element of monetary policy when threats to monetary policy transmission compromise the achievement of price stability. In particular, in the event of renewed pandemic-related market fragmentation, reinvestments under the PEPP can be adjusted at any time in a flexible manner over time, across asset classes, and across jurisdictions. This could include the purchase of bonds issued by the Hellenic Republic in addition to the reinvestment of maturing amounts in order to avoid an interruption of purchases in that jurisdiction, which could hinder the transmission of monetary policy to the Greek economy as it continues to recover from the effects of the pandemic. Net purchases under the PEEP could also be resumed, if necessary, to offset negative pandemic-related shocks.

Financing operations

The Governing Council will continue to monitor banks’ refinancing conditions and ensure that the maturity of the operations of the third series of targeted longer-term refinancing operations (TLTRO III) does not hinder the smooth transmission of its monetary policy. The Governing Council will also regularly assess how the targeted refinancing operations are contributing to its monetary policy stance. As announced, it expects the special conditions applicable to TLTRO III to cease to apply in June this year. The Governing Council will also assess the appropriate calibration of its two-tranche reserve remuneration scheme so that the negative policy rate does not constrain banks’ intermediation capacity in an environment of ample excess liquidity.

Liquidity facilities with non-euro area central banks

In view of the high uncertainty caused by the Russian invasion of Ukraine and the risk of regional spillover effects that could adversely affect euro area financial markets, the Governing Council has decided to extend the Eurosystem’s repo facility for central banks (EUREP) until 15 January 2023. EUREP will therefore continue to complement the regular euro liquidity provision arrangements with non-euro area central banks. This forms a comprehensive set of back-up facilities to address potential euro liquidity needs in the event of market dysfunctions outside the euro area that could adversely affect the smooth transmission of the ECB’s monetary policy. The Governing Council will assess on a case-by-case basis requests from non-euro area central banks to establish individual euro liquidity lines.

Source: BCE