ECB lays ground for fresh stimulus package

European Central Bank HQ in Frankfurt

The European Central Bank (ECB) on Thursday sent a strong signal that its monetary support for the euro area economy will be increased after the summer — with lower interest rates and renewed asset purchases both seen as possibilities.

THE ECB revamped its interest rate guidance and asked its staff to prepare options for more policy easing, 

President Mario Draghi and policy makers said they expect borrowing costs to stay at present levels “or lower” through at least the first half of 2020, opening room for a September reduction in the deposit rate from the record low of minus 0.4%.

ECB officials also signaled they could restart their bond-buying program if required.

“At today’s meeting the Governing Council of the European Central Bank (ECB) decided that 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 -0.40% respectively,” said the ECB.

“The Governing Council expects the key ECB interest rates to remain at their present or lower levels at least through the first half of 2020, and in any case for as long as necessary to ensure the continued sustained convergence of inflation to its aim over the medium term.

“The Governing Council intends to continue reinvesting, in full, the principal payments from maturing securities purchased under the asset purchase programme for an extended period of time past the date when it 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.

“The Governing Council also underlined the need for a highly accommodative stance of monetary policy for a prolonged period of time, as inflation rates, both realised and projected, have been persistently below levels that are in line with its aim.

“Accordingly, if the medium-term inflation outlook continues to fall short of its aim, the Governing Council is determined to act, in line with its commitment to symmetry in the inflation aim.

“It therefore stands ready to adjust all of its instruments, as appropriate, to ensure that inflation moves towards its aim in a sustained manner.

“In this context, the Governing Council has tasked the relevant Eurosystem Committees with examining options, including ways to reinforce its forward guidance on policy rates, mitigating measures, such as the design of a tiered system for reserve remuneration, and options for the size and composition of potential new net asset purchases.”

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