European Central Bank (ECB) prepares EUR1.1 trillion (US$1.19 billion) bond buyback program at an emergency meeting late on Wednesday - Photo by ECB

JAKARTA (TheInsiderStories) – The governing council of European Central Bank (ECB) launched EUR750 billion (US$781.25 billion) pandemic emergency purchase program (PEPP), said the central bank yesterday (03/18). The policy taken to stop a pandemic rout shredding the eurozone’ economy and renew concerns about the bloc’ viability.

Based on official statement, the purchases will be conducted until the end of 2020 and will include all the asset categories eligible under the existing asset purchase program. The benchmark allocation across jurisdictions will continue to be the capital key of the national central banks.

“At the same time, purchases under the new PEPP will be conducted in a flexible manner. This allows for fluctuations in the distribution of purchase flows over time, across asset classes and among jurisdictions,” said the statement.

Its stated, a waiver of the eligibility requirements for securities issued by the Greek government will be granted for purchases under PEPP. ECB will terminate net asset purchases under PEPP once it judges that the COVID-19 crisis phase is over, but in any case not before the end of the year.

The central bank also to expand the range of eligible assets under the corporate sector purchase program(CSPP) to non-financial commercial paper, making all commercial papers of sufficient credit quality eligible for purchase under the program. Then, to ease the collateral standards by adjusting the main risk parameters of the collateral framework.

“In particular, we will expand the scope of Additional Credit Claims (ACC) to include claims related to the financing of the corporate sector. This will ensure that counterparties can continue to make full use of the Eurosystem’s refinancing operations,” said the policymakers.

To that end, the ECB will ensure that all sectors of the economy can benefit from supportive financing conditions that enable them to absorb this shock. This applies equally to families, firms, banks and governments.

“The governing council will do everything necessary within its mandate. The board is fully prepared to increase the size of its asset purchase programs and adjust their composition, by as much as necessary and for as long as needed. It will explore all options and all contingencies to support the economy through this shock,” it said.

To the extent that some self-imposed limits might hamper action that the ECB is required to take in order to fulfill its mandate, the policymakers will consider revising them to the extent necessary to make its action proportionate to the risks that we face.

They stated, “The ECB will not tolerate any risks to the smooth transmission of its monetary policy in all jurisdictions of the euro area.”

With the new stimulus, bringing its planned purchases for this year to EUR1.1 trillion, with the newly agreed buys alone worth 6 percent of the Euro area’ gross domestic products (GDP).

“Extraordinary times require extraordinary action. There are no limits to our commitment to the euro. We are determined to use the full potential of our tools, within our mandate,” said ECB President Christine Lagarde as quoted by global media.

In last regular meeting, the ECB approved a large stimulus package but the measures disappointed investors. With bond yields on the bloc’ periphery soaring and the spread between Italian and German ten-year debt doubling in just a few days, pressure has been mounting on the central bank to do more.

US$1: EUR0.96

by Linda Silaen, Email: linda.silaen@theinsiderstories.com