ECB grants extension on APP in response to market weakness
13 September 2019 Frankfurt
Image: Shutterstock
The European Central Bank (ECB) has committed to continue buying assets with yields below the interest rate on the deposit facility as part of its asset purchase programme (APP).
The council had previously decided, in January 2017, that purchases of assets with yields below the deposit facility rate could take place under the public sector purchase programme.
Yesterday’s decision extends this possibility to the private sector parts of the APP, namely the third covered bond purchase programme, the asset-backed securities purchase programme and the corporate sector purchase programme.
In a statement on the decision, which was announced following a meeting of the ECB’s governing council yesterday, it was confirmed that the extension takes place with immediate effect and will facilitate the continued smooth implementation of the APP and reflects changes in market interest rates relative to the deposit facility rate.
The council added that it expects net purchases 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.
The dovish stance was widely expected by industry participants who were speculating more on the scale of the stimulus package rather than whether it would be pursued at all.
In reaction to yesterday’s ECB meeting, Tim Graf, head of EMEA macro strategy at State Street Global Markets said: “Far from taking on board the recent views of some of his more hawkish colleagues on the Governing Council, ECB president, Mario Draghi has put forward an easing package to satisfy those hungriest for stimulus, ensuring markets that a return of inflation back towards target is the highest of priorities.”
“Draghi has also built a dovish platform upon which his successor, Christine Lagarde can build when she takes over in November. At this stage, it is hard to see much more policy innovation in the coming six months, but this is probably not a buy signal for the euro or a sell signal for European government bonds. With such an easy policy backdrop, recent down trends in the currency and yields look more likely.”
The council had previously decided, in January 2017, that purchases of assets with yields below the deposit facility rate could take place under the public sector purchase programme.
Yesterday’s decision extends this possibility to the private sector parts of the APP, namely the third covered bond purchase programme, the asset-backed securities purchase programme and the corporate sector purchase programme.
In a statement on the decision, which was announced following a meeting of the ECB’s governing council yesterday, it was confirmed that the extension takes place with immediate effect and will facilitate the continued smooth implementation of the APP and reflects changes in market interest rates relative to the deposit facility rate.
The council added that it expects net purchases 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.
The dovish stance was widely expected by industry participants who were speculating more on the scale of the stimulus package rather than whether it would be pursued at all.
In reaction to yesterday’s ECB meeting, Tim Graf, head of EMEA macro strategy at State Street Global Markets said: “Far from taking on board the recent views of some of his more hawkish colleagues on the Governing Council, ECB president, Mario Draghi has put forward an easing package to satisfy those hungriest for stimulus, ensuring markets that a return of inflation back towards target is the highest of priorities.”
“Draghi has also built a dovish platform upon which his successor, Christine Lagarde can build when she takes over in November. At this stage, it is hard to see much more policy innovation in the coming six months, but this is probably not a buy signal for the euro or a sell signal for European government bonds. With such an easy policy backdrop, recent down trends in the currency and yields look more likely.”
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