ECB leaves key policy rates unchanged; boosts PEPP by €600 billion

Author: Justin Low | Category: Central Banks

ECB announces their latest monetary policy decision - 4 June 2020


  • Prior decision (30 April)
  • PEPP announcement (18 March)
  • Deposit facility rate -0.50%
  • Main refinancing rate 0.00%
  • Marginal lending facility 0.25%
  • Adds €600 billion to PEPP, extends program to at least June 2021
  • Says that it will conduct PEPP purchases in a flexible manner
  • Says that rates will stay at present or lower levels until it nears inflation target
  • Reaffirms that it stands ready to adjust all instruments as appropriate
  • Expects QE to run for as long as necessary to reinforce accommodative rates impact
The forward guidance pretty much reads the same but the ECB certainly delivered on expectations with regards to PEPP.

In essence, this shows that they are committed to keep the economic recovery going as they boost the program by €600 billion (expectation was €500 billion) and extend it to the middle of next year. The ECB did not go as far to include junk bonds in the program though.

The euro is higher on the decision here, with EUR/USD climbing from 1.1200 to 1.1240 levels now and EUR/GBP is also up from 0.8940 to 0.8955.

The full statement by the ECB:

At today's meeting the Governing Council of the ECB took the following monetary policy decisions:

(1) The envelope for the pandemic emergency purchase programme (PEPP) will be increased by €600 billion to a total of €1,350 billion. In response to the pandemic-related downward revision to inflation over the projection horizon, the PEPP expansion will further ease the general monetary policy stance, supporting funding conditions in the real economy, especially for businesses and households. The purchases will continue to be conducted in a flexible manner over time, across asset classes and among jurisdictions. This allows the Governing Council to effectively stave off risks to the smooth transmission of monetary policy.

(2) The horizon for net purchases under the PEPP will be extended to at least the end of June 2021. In any case, the Governing Council will conduct net asset purchases under the PEPP until it judges thatthe coronavirus crisis phase is over.

(3) The maturing principal payments from securities purchased under the PEPP will be reinvested until at least the end of 2022. In any case, the future roll-off of the PEPP portfolio will be managed to avoid interference with the appropriate monetary stance.

(4) Net purchases under the asset purchase programme (APP) will continue at a monthly pace of €20 billion, together with the purchases under the additional €120 billion temporary envelope until the end of the year. The Governing Council continues to expect monthly net asset purchases under the APP to run for as long as necessary to reinforce the accommodative impact of its policy rates, and to end shortly before it starts raising the key ECB interest rates.

(5) Reinvestments of the principal payments from maturing securities purchased under the APP will continue, in full, for an extended period of time past the date when the Governing Council starts raising the key ECB interest rates, and in any case for as long as necessary to maintain favourable liquidity conditions and an ample degree of monetary accommodation.

(6) 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. The Governing Council expects the key ECB interest rates to remain at their present or lower levels until it has seen the inflation outlook robustly converge to a level sufficiently close to, but below, 2% within its projection horizon, and such convergence has been consistently reflected in underlying inflation dynamics.

The Governing Council continues to stand ready to adjust all of its instruments, as appropriate, to ensure that inflation moves towards its aim in a sustained manner, in line with its commitment to symmetry.

The President of the ECB will comment on the considerations underlying these decisions at a press conference starting at 14:30 CET today.

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