ECB bolsters and extends pandemic QE programme
05 May 2020 Frankfurt
Image: Euro/Shutterstock.com
The European Central Bank (ECB) has this week almost doubled its emergency pandemic bond purchase programme and extended its time horizon to maintain market liquidity amid pandemic-related downward revisions to inflation.
As part of yesterday’s ECB General Council meeting, it was agreed to bolster the central bank’s COVID-related bond purchase programme by an additional €600 billion to €1,350 billion and extended its operation until at least June 2021.
The scale of the EU’s pandemic emergency purchase programme (PEPP), aimed at calming EU markets by ensuring a steady supply of liquidity to banks, was enlarged in response to the “pandemic-related downward revision to inflation over the projection horizon,” the council says.
The PEPP’s expansion “will further ease the general monetary policy stance, supporting funding conditions in the real economy, especially for businesses and households,” it adds.
The programme was launched in March with a war chest worth €750 billion to assists EU markets left reeling by the COVID-19 pandemic and was pegged to run at least until the end of the year.
It will now run until at least June 2021 or until the ECB “judges that the coronavirus crisis phase is over”.
In the statement, the council notes that the purchases will continue to be conducted in a “flexible manner over time”, across asset classes and among jurisdictions.
This will allow the council to effectively stave off risks to the smooth transmission of monetary policy, it explains.
Additionally, the council says it has further decided to reinvest the maturing principal payments from securities purchased under the PEPP until at least the end of 2022.
Commenting on the ECB’s enlarged quantitative easing bond purchase programme, Rupert Thompson, chief investment officer at Kingswood, a UK integrated wealth management group, says: “The increase was somewhat larger than expected and follows recent moves by Germany and the EU more generally to step up their fiscal stimulus.
“The ECB move came despite the German Constitutional Court’s move a few weeks ago to stymie the ECB’s bond buying.
Thompson notes that the move brings the EU more in line with the US in terms of its policy stimulus, adding the UK’s Monetary Policy Committee is now also likely to step up its own programme at its next meeting on 18 June.
The need to bolster the programme comes after the ECB’s bi-monthly breakdown of its PEPP holdings, published last month, revealed it had already spent almost a third of its budget in the first two months and would have reached its €750 billion cap by September, well before it planned to wind down the programme.
The data shows that the ECB purchased a total of €234.7 billion (book value) of bonds by the end of May.
The purchases are mainly concentrated in public bonds (79 percent), with 15 percent in commercial paper, 5 percent in corporate bonds, and 1 percent in covered bonds. Notably, there have so far there been no purchases of asset-backed securities.
A research note by the International Capital Market Association (ICMA) highlights that the cumulative total purchases by sovereign issuer reveal a skew toward purchases of German, Italian, and Spanish debt. Largely at the expense of French debt.
However, ICMA notes, there appears to be no significant deviation away from the capital key in favour of periphery sovereign debt, as had originally been anticipated.
As part of yesterday’s ECB General Council meeting, it was agreed to bolster the central bank’s COVID-related bond purchase programme by an additional €600 billion to €1,350 billion and extended its operation until at least June 2021.
The scale of the EU’s pandemic emergency purchase programme (PEPP), aimed at calming EU markets by ensuring a steady supply of liquidity to banks, was enlarged in response to the “pandemic-related downward revision to inflation over the projection horizon,” the council says.
The PEPP’s expansion “will further ease the general monetary policy stance, supporting funding conditions in the real economy, especially for businesses and households,” it adds.
The programme was launched in March with a war chest worth €750 billion to assists EU markets left reeling by the COVID-19 pandemic and was pegged to run at least until the end of the year.
It will now run until at least June 2021 or until the ECB “judges that the coronavirus crisis phase is over”.
In the statement, the council notes that the purchases will continue to be conducted in a “flexible manner over time”, across asset classes and among jurisdictions.
This will allow the council to effectively stave off risks to the smooth transmission of monetary policy, it explains.
Additionally, the council says it has further decided to reinvest the maturing principal payments from securities purchased under the PEPP until at least the end of 2022.
Commenting on the ECB’s enlarged quantitative easing bond purchase programme, Rupert Thompson, chief investment officer at Kingswood, a UK integrated wealth management group, says: “The increase was somewhat larger than expected and follows recent moves by Germany and the EU more generally to step up their fiscal stimulus.
“The ECB move came despite the German Constitutional Court’s move a few weeks ago to stymie the ECB’s bond buying.
Thompson notes that the move brings the EU more in line with the US in terms of its policy stimulus, adding the UK’s Monetary Policy Committee is now also likely to step up its own programme at its next meeting on 18 June.
The need to bolster the programme comes after the ECB’s bi-monthly breakdown of its PEPP holdings, published last month, revealed it had already spent almost a third of its budget in the first two months and would have reached its €750 billion cap by September, well before it planned to wind down the programme.
The data shows that the ECB purchased a total of €234.7 billion (book value) of bonds by the end of May.
The purchases are mainly concentrated in public bonds (79 percent), with 15 percent in commercial paper, 5 percent in corporate bonds, and 1 percent in covered bonds. Notably, there have so far there been no purchases of asset-backed securities.
A research note by the International Capital Market Association (ICMA) highlights that the cumulative total purchases by sovereign issuer reveal a skew toward purchases of German, Italian, and Spanish debt. Largely at the expense of French debt.
However, ICMA notes, there appears to be no significant deviation away from the capital key in favour of periphery sovereign debt, as had originally been anticipated.
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