ECB Decision Recap

Below we present some key bullet points regarding today’s ECB’s meeting. Measures are supposed to revive the economy amid coronavirus outbreak, which according to ECB’s President Lagarde will have a tremendous impact on demand slowdown and negative consequences for European output. 

Additional new LTRO, which should guarantee immediate liquidity injection in the eurozone. So far the ECB does not see any liquidity problems, yet the above programme should counter any possible liquidity shortages in the banking sector. LTRO would provide additional liquidity with 36-month loans until TLTRO III launches in June 2020

TLTRO III will introduce more favourable terms. From June 2020 to June 2021 the rate will be 25bps below the MRO rate

Temporary QE extentionsion of €120 bln monthly (until the end of the year), with purchases particularly in private sector

QE programme will be continued as long as needed

Interest rates remain unchanged. They will remain low until inflations boosts (inflation target of 2%)

Apart from that, the ECB will introduce measures that will loosen capital requirements for banks - they can fully use capital and liquidity buffers, including Pillar 2 Guidance. Banks will also be allowed to partially use capital instruments that do not qualify as Common Equity Tier 1 (CET1) capital, for example Additional Tier 1 or Tier 2 instruments, to meet the Pillar 2 Requirements (P2R).

What did Lagarde mention?

 Lagarde encouraged to implement some coordinated measures by fiscal authorities

ECB’s efforts are to ensure that the credit sector remains liquid

ECB projected an annual growth of 0.8% this year compared with 1.1% in the previous forecast

The risk of further economic slowdown

The economic growth of 1.3% in 2021 (previous forecast: 1.4%). Obviously macroeconomic expectations do not have much in common with today’s reality. 

EURUSD continues to plunge following the ECB's decision. On the other hand, DAX is dropping almost 10%.

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