Strengthen and extend, the ECB’s last recalibration in 2020

The interest rates of the ECB’s main refinancing operations as well as those of the marginal lending facility and the deposit facility remain unchanged at 0.00%, 0.25% and -0.50% respectively. The Governing Council has indicated that rates should remain at their current levels or at lower levels until the inflation outlook converges on a lasting basis to a level sufficiently close to, but below, 2%. Judging by the current figures, the account is not there: inflation stood at -0.3% year-on-year in November, as in the previous two months. Despite a “commitment to symmetry”, the ECB does not believe it will be able to push inflation back above 1.4% by 2023.

With regard to its asset purchase program, the ECB increased the envelope devoted to its pandemic emergency purchase program (PEPP) by 500 billion euros, the bringing to a total of 1.850 billion euros. It has also extended the horizon set for net purchases under the PEPP until the end of March 2022 at least, while the products of maturing securities will be invested at least until the end of 2023. These mechanisms complement the asset purchase program (APP), which will continue at a monthly rate of 20 billion euros and will be maintained as long as necessary to reinforce the accommodative effects of key rates. The main interest rates will not be raised while this program is underway.

A battery of new measures

In order to ensure that euro area banks have sufficient liquidity, the ECB has rolled out a battery of new measures. It extended by one year, until June 2022 (when the consensus expected a six-month extension), the period during which banks can refinance at -1%, provided certain conditions are met. ready. It also announced that it will carry out three additional refinancing operations for the three-year loans, the last one scheduled for December 2021.

The ECB said: “The monetary policy measures adopted today will help to preserve favorable financing conditions during the pandemic period, thus promoting the flow of credit to all sectors of the economy, supporting activity. economy and maintaining price stability in the medium term. “

It is a very harsh winter that looms for the euro zone, on the brink of a double-dip recession and exposed to a risk of no deal (or very limited agreement) for Brexit. The ECB has equipped the eurozone with a kind of windbreak, but as Christine Lagarde herself has indicated, it is a package of ambitious and coordinated fiscal measures that the region really needs. This file has been on standby lately due to the disagreement between Hungary and Poland on the principle of conditionality. We will have to wait a few more hours to find out whether the optimism of the leader of the ruling party in Poland regarding an end to the budgetary impasse is not feigned. Monetary policy can only provide financing on concessional terms, and attempt to ease the debt burden on businesses and consumers. It does not have the capacity to stimulate demand and investment.

In any case, at a time when the 350 million inhabitants of the euro area are awaiting a vaccine against the coronavirus, the ECB has cut its best cards so that European leaders can agree on a set of fiscal measures that will affect the real economy.

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