MNI POLICY: ECB Announces Rate Cut, QE Tiering, Longer TLTRO

By Luke Heighton

     FRANKFURT (MNI) - The European Central Bank said it will cut its deposit

facility rate by 10 basis points to -0.5% and will launch a fresh round of

quantitative easing from Nov. 1, buying bonds at a monthly pace of E20 billion

"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 Governing Council said it now expects rates to remain "at their present

or lower levels until it has seen the inflation outlook robustly converge to a

level sufficiently close to, but below, 2% within its projection horizon, and

such convergence has been consistently reflected in underlying inflation

dynamics."

     Terms of the most recent round of cheap loans to banks via targeted

longer-term refinancing operations (TLTROs), announced in June, were also

softened, with their rate cut to the average life of the main refinancing

operations over the loans' lives. Their maturities will be extended from two to

three years."

     A two tier system for reserve remuneration of the banks was also announced,

with further details to be published at 15.30 CET.

     There was no change to the ECB's policy on the reinvestments of the

principal payments from maturing securities, which will continue "for an

extended period of time past the date when the Governing Council starts raising

the key ECB interest rates, and in any case for as long as necessary to maintain

favourable liquidity conditions and an ample degree of monetary accommodation."

--MNI Frankfurt Bureau; +49-69-720-146; email: luke.heighton@marketnews.com

--MNI London Bureau; +44 203 865 3829; email: jason.webb@marketnews.com

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