ECB head Office - Photo by European Central Bank

JAKARTA (TheInsiderStories) – The European Central Bank (ECB) has cut the deposit facility rate by 10 basis points to -0.50 percent during its September meeting, in an attempt to boost growth amid global trade tensions. The central bank left rates on the main refinancing operations and the marginal lending facility unchanged, at 0 percent and 0.25 percent, respectively.

A statement from the central bank on Thursday (09/12) noted that the Governing Council expects the key interest rates to remain unchanged or edge down until the inflation outlook converges to a level sufficiently close to, but below, 2 percent within its projection horizon and such convergence have been consistently reflected in underlying inflation dynamics.

The asset purchase program (APP) will be restarted from November 1, at a monthly pace of €20 billion (US$21.92 million), “to reinforce the accommodative impact of its policy rates,” the policymakers announced.

The Governing Council expects them 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.

European stocks rose after the ECB announced a series of measures to stimulate the eurozone economy, including the restart of a monthly bond-buying program, AP reported. The DAX 30 increased 0.6 percent; the FTSE 100 rose 0.2 percent; the CAC 40 advanced 0.4 percent; the IBEX 35 went up 0.4 percent and the FTSE MIB gained 0.7 percent around 01:10 PM London time.

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.

“The modalities of the new series of quarterly targeted longer-term refinancing operations (TLTRO III) will be changed to preserve favorable bank lending conditions, ensure the smooth transmission of monetary policy and further support the accommodative stance of monetary policy,” the statement added.

The interest rate in each operation will now be set at the level of the average rate applied in the Eurosystem’s main refinancing operations over the life of the respective TLTRO., it said.

For banks whose eligible net lending exceeds a benchmark, it went on, the rate applied in TLTRO III operations will be lower, and can be as low as the average interest rate on the deposit facility prevailing over the life of the operation. The maturity of the operations will be extended from two to three years.

In order to support the bank-based transmission of monetary policy, the policymakers said, a two-tier system for reserve remuneration will be introduced, in which part of banks’ holdings of excess liquidity will be exempt from the negative deposit facility rate.

€1=US$1.10

Written by Lexy Nantu, Email: lexy@theinsiderstories.com