ECB adds another €500 billion to asset purchase programme

The ECB Expands its asset purchase programme by €500 billion to a total of €1,850 billion. The central bank is also extending the duration of this new support programme until at least the end of 2023. In this way, the central bank is trying to push interest rates down further and stimulate lending to consumers and businesses. Banks will also receive more liquidity support.

The extension of the so-called Pandemic Emergency Purchase Programme (PEPP), the central bank can buy even more government bonds. In contrast to the regular bond-buying programme that started in 2014, the central bank can deviate from the fixed allocation key in this new support programme. In practice, this means that the central bank mainly buys government bonds of the southern euro countries, with the aim of keeping interest rate differentials between countries limited.

Free money for banks

In addition to the expansion of the bond-buying program, ECB President Lagarde announced more support measures. It extended the TLTRO programme by twelve months to June 2022 and also announced three additional rounds of liquidity support. Through this window, banks in the eurozone can borrow money on very favourable terms in exchange for collateral (government bonds).

The extension of the TLTRO program will allow banks to easily roll over previous loans at the central bank's counter. The central bank is also easing conditions, allowing banks to borrow up to 55% of the collateral invested. Until recently, this was a maximum of 50%. In order to prevent banks from just buy government bonds and do not grant credit to businesses and consumers, they must meet certain conditions.

In addition to new rounds of TLTRO, Lagarde also announced four additional rounds of PELTRO liquidity support. This extension of the existing TLTRO programme was launched at the beginning of the coronavirus crisis to provide the banking sector with more liquidity. Through this desk, banks can borrow money even cheaper, at interest rates of up to -1%. This means that banks will receive money.

Swaplines and repo facility

Finally, Lagarde announced that the ECB would Repo Facility and swap lines for other central banks for longer, i.e. until March 2022. Previously, the end date was June 2021. Through these facilities, other central banks can gain direct access to euros. This may be necessary when stress in the financial markets increases and liquidity in the market dries up.

This contribution comes from Geotrendlines