ECB decides on liquidity support and expands bond-buying programme

In view of the current coronavirus crisis, the European Central Bank (ECB) has taken some important decisions. The main decisions were as follows:
  • Additional longer-term refinancing operations (LTROs) in order to provide immediate liquidity support; the aim is to bridge the period until June 2020

  • Targeted longer-term refinancing operations (TLTROs) to support small and medium-sized enterprises

  • Expansion of the bond-buying programme, with additional net asset purchases of €120 billion up to the end of 2020

  • The deposit rate is to remain unchanged at minus 0.5 per cent

Christine Lagarde knows that challenging times require rapid and courageous action. Rather than being tempted to pointlessly reduce interest rates, the ECB has introduced measures that are primarily aimed at supporting European companies in this difficult situation. These latest measures from the ECB will help to significantly mitigate economic risks that might take hold as a result of turmoil in the capital markets. However, the ECB could have gone even further. It would have been very helpful if the central bank had shouldered more of the risk with an even bolder expansion of the bond-buying programme.

Given the high degree of uncertainty prevailing in the real economy and financial sector, this decision alone is unlikely to make a lasting difference in the capital markets. This would require further measures, not least from the US. Sustained price rises cannot be expected until coronavirus has been dealt with successfully or (even more) substantial fiscal and monetary action is taken.

We therefore continue to believe that the situation in the capital markets is likely to remain turbulent for some time yet. The decision taken by the ECB today has done nothing to change this, but it was the right decision for the economy and from the perspective of monetary policy.


As at 12 March 2020