750bn ECB bond-buying programme to fight Coronavirus

The economic impact of coronavirus is a rising strain across the world and ECB announced €750 billion Pandemic Emergency Purchase Programme. The European Central Bank announced plans to buy an additional €750bn in bonds under the COVID-19 emergency. It is a massive stimulus plan to calm global markets under the gravity of the Coronavirus situation.

Many people see COVID-19 as an Economic crisis first and a Health threat second. Economic concerns appear to have risen more steeply than concerns relating to the level of threat posed by the virus.

ECB safeguards liquidity conditions

European Central Bank will continue to monitor closely the consequences for the economy of the spreading coronavirus and stands ready to adjust all of its measures. ECB safeguards liquidity conditions in the EU banking system and ensures the smooth transmission of its monetary policy in all jurisdictions. European Central Bank plans to buy another €750bn of bonds in a bid to tackle the worsening coronavirus crisis.

The US Federal Reserve moved interest rate to near zero last Sunday and declared it would buy $700 billion in Treasury and mortgage bonds. ECB as a global response decides a 750bn bond-buying programme to aim to ease the flow of credit in EU and households struggling amid the viral outbreak.

Most people expect normal life to resume by June. Is it true?

ECB Gets Ready.

A Bigger Disruption Is Coming?

The ECB Governing Council decided the following:

(1) To launch a new temporary asset purchase programme of private and public sector securities to counter the serious risks to the monetary policy transmission mechanism and the outlook for the euro area posed by the outbreak and escalating diffusion of the coronavirus, COVID-19.

Asset Purchase Programme – APP

This new Pandemic Emergency Purchase Programme (PEPP) will have an overall envelope of €750 billion. Purchases will be conducted until the end of 2020 and will include all the asset categories eligible under the existing asset purchase programme (APP).

For the purchases of public sector securities, the benchmark allocation across jurisdictions will continue to be the capital key of the national central banks. At the same time, purchases under the new PEPP will be conducted in a flexible manner. This allows for fluctuations in the distribution of purchase flows over time, across asset classes and among jurisdictions.

A waiver of the eligibility requirements for securities issued by the Greek government will be granted for purchases under PEPP.

The Governing Council will terminate net asset purchases under PEPP once it judges that the coronavirus Covid-19 crisis phase is over, but in any case not before the end of the year.

Corporate Sector Purchase Programme – CSPP

(2) To expand the range of eligible assets under the corporate sector purchase programme (CSPP) to non-financial commercial paper, making all commercial papers of sufficient credit quality eligible for purchase under CSPP.

Additional Credit Claims – ACC

(3) To ease the collateral standards by adjusting the main risk parameters of the collateral framework. In particular, we will expand the scope of Additional Credit Claims (ACC) to include claims related to the financing of the corporate sector. This will ensure that counterparties can continue to make full use of the Eurosystem’s refinancing operations.

The Governing Council of the ECB is committed to playing its role in supporting all citizens of the euro area through this extremely challenging time. To that end, the ECB will ensure that all sectors of the economy can benefit from supportive financing conditions that enable them to absorb this shock. This applies equally to families, firms, banks and governments.

The Governing Council will do everything necessary within its mandate. The Governing Council is fully prepared to increase the size of its asset purchase programmes and adjust their composition, by as much as necessary and for as long as needed. It will explore all options and all contingencies to support the economy through this shock.

To the extent that some self-imposed limits might hamper action that the ECB is required to take in order to fulfil its mandate, the Governing Council will consider revising them to the extent necessary to make its action proportionate to the risks that we face. The ECB will not tolerate any risks to the smooth transmission of its monetary policy in all jurisdictions of the euro area.

Coordinated central bank action to enhance the provision of global US dollar liquidity.

ECB and other major central banks to offer weekly US dollar operations with 84-day maturity in addition to existing 1-week operations. 

The Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank, the Federal Reserve, and the Swiss National Bank are today announcing a coordinated action to enhance the provision of liquidity via the standing US dollar liquidity swap line arrangements.

These central banks have agreed to lower the pricing on the standing US dollar liquidity swap arrangements by 25 basis points, so that the new rate will be the US dollar overnight index swap (OIS) rate plus 25 basis points. To increase the swap lines’ effectiveness in providing term liquidity, the foreign central banks with regular US dollar liquidity operations have also agreed to begin offering US dollars weekly in each jurisdiction with an 84-day maturity, in addition to the 1-week maturity operations currently offered.

Coronavirus outbreak threatens EU economy

These changes will take effect with the next scheduled operations during the week of 16 March. The new pricing and maturity offerings will remain in place as long as appropriate to support the smooth functioning of US dollar funding markets.

The swap lines are available standing facilities and serve as an important liquidity backstop to ease strains in global funding markets. Experts try to mitigate the effects to households and businesses, both domestically and abroad.

Most countries, including hotspots, expect things to return to normal by June. ECB gets ready for longer time.

WHO coronavirus advice!

Isolation, testing and tracing comprise the “backbone” of response.