April 14, 2022
Russia’s aggression in Ukraine is causing enormous suffering. It also affects the economy in Europe and beyond. The conflict and the associated uncertainty are weighing heavily on business and consumer confidence. Trade disruptions lead to new material and input shortages. Rising energy and raw material prices reduce demand and hamper production. How the economy develops will depend decisively on the course of the conflict, the effects of current sanctions and possible further measures. At the same time, economic activity continues to be supported by the reopening of the economy after the crisis phase of the pandemic. Inflation has increased significantly and will remain high in the coming months, mainly due to the sharp rise in energy costs. Inflationary pressures have increased in many sectors.
At today’s meeting the Governing Council concluded that the data received since its last meeting reinforced its expectation that net asset purchases under its asset purchase program should be completed in the third quarter. Looking ahead, the ECB’s monetary policy will depend on incoming data and the Governing Council’s evolving view of the outlook. Under the current conditions of high uncertainty, the Governing Council will adhere to optionality, gradualism and flexibility in conducting monetary policy. The Governing Council will take all necessary measures to fulfill the ECB’s mandate to pursue price stability and contribute to safeguarding financial stability.
Asset Purchase Program (APP)
Monthly net purchases under the APP will be €40 billion in April, €30 billion in May and €20 billion in June. At today’s meeting the Governing Council concluded that the data received since its last meeting reinforced its expectation that net asset purchases under the APP should be completed in the third quarter. The calibration of net purchases for the third quarter will be data dependent and will reflect the Governing Council’s evolving view on the outlook.
The Governing Council also intends to extend principal payments on maturing securities purchased under the APP for a longer period after the date on which it starts raising the key ECB interest rates, and in any case for so long reinvest necessary to maintain favorable liquidity conditions and a high degree of monetary accommodation.
Key interest rates of the ECB
The interest rates on the main refinancing operations, the interest rates on the marginal lending facility and the deposit facility remain unchanged at 0.00%, 0.25% and -0.50%, respectively.
Any adjustments to the key ECB interest rates will come some time after the end of the Governing Council’s net purchases under the APP and will be phased in. The path for the key ECB interest rates will continue to be determined by the Governing Council’s forward guidance and its strategic commitment to stabilize inflation at 2% over the medium term. Accordingly, the Governing Council expects the key ECB interest rates to remain at their current levels until inflation reaches 2% well before the end of its projection horizon and sustainably for the remainder of the projection horizon, and anticipates that progress has been made underlying inflation is sufficiently advanced to be consistent with inflation stabilizing at 2% over the medium term.
Pandemic Emergency Purchase Program (PEPP)
The Governing Council intends to reinvest principal payments from maturing securities purchased under the PEPP until at least the end of 2024. In any event, the future liquidation of the PEPP portfolio will be managed in a way that avoids disrupting the appropriate monetary policy stance.
In the event of another pandemic-related market fragmentation, PEPP reinvestments can be flexibly adjusted at any time across time periods, asset classes and jurisdictions. This could include the purchase of bonds issued by the Hellenic Republic in excess of redemption rollovers to avoid disrupting purchases in that jurisdiction, which could affect the transmission of monetary policy to the Greek economy while it is still recovering from recovering from the consequences of the crisis pandemic. Net purchases under the PEPP could also resume if needed to counteract adverse shocks related to the pandemic.
The Governing Council will continue to monitor banks’ funding conditions and ensure that the maturities of operations under the third series of targeted longer-term refinancing operations (TLTRO III) do not impede the smooth transmission of its monetary policy. The Governing Council will also regularly assess how targeted lending operations contribute to its monetary policy stance. As announced, it expects the special conditions applicable under TLTRO III to end in June this year. The Governing Council will also consider the appropriate calibration of its two-tier reserve remuneration system so that negative interest rate policy does not constrain banks’ intermediation capacity in an environment of ample excess liquidity.
The Governing Council stands ready to adjust all of its instruments within its mandate, including flexibility where appropriate, to ensure inflation stabilizes at its 2% target over the medium term. The pandemic has demonstrated that flexibility in designing and executing asset purchases under stressed conditions has helped counteract the impaired transmission of monetary policy and made the Governing Council’s efforts to achieve its objective more effective. Within the Governing Council’s mandate, flexibility will remain an element of monetary policy even under stressed conditions, when threats to monetary policy transmission threaten the achievement of price stability.
The President of the ECB will comment on the reasoning behind these decisions at a press conference today at 14:30 CET.