MNI POLICY: ECB Offers News TLTROs, Changes Forward Guidance

By Luke Heighton

     FRANKFURT (MNI) - A fresh round of targeted long-term refinancing

operations (TLTROs) was announced by the European Central Bank Thursday, while

key interest rates will remain unchanged "at least through the end of 2019."

     TLTRO III will be launched in September this year and end in March 2021,

each with a maturity of two years.

     Full details will be announced "in due course," the ECB said, but

counterparties will be entitled to borrow up to 30% of the stock of eligible

loans as at February 28 2019 at a rate indexed to the interest rate on the main

refinancing rate over the life of each operation.

     In another significant move, the ECB also changed its forward guidance on

the timing of key interest rate rises from "at least through the summer of 2019,

and in any case for as long as necessary..." to "at least through the end of

2019, and in any case for as long as necessary" to ensure the continued

sustained convergence of inflation to levels below, but close to, 2% over the

medium term.

     Enhanced forward guidance on the reinvestment of principal payments from

maturing securities purchased under the ECB's asset purchase programme remains

couple to the timing of increases in key interest rates, it was confirmed.

     Fixed rate tender procedures with full allotment will also continue "for as

long as necessary," the ECB announced, "and at least until the end of the

reserve maintenance period starting in March 2021.".

     The full text is below:

     Monetary policy decisions

     At today's meeting the Governing Council of the European Central Bank (ECB)

took the following monetary policy decisions:

     (1) The interest rate on the main refinancing operations and the interest

rates on the marginal lending facility and the deposit facility will remain

unchanged at 0.00%, 0.25% and -0.40% respectively. The Governing Council now

expects the key ECB interest rates to remain at their present levels at least

through the end of 2019, and in any case for as long as necessary to ensure the

continued sustained convergence of inflation to levels that are below, but close

to, 2% over the medium term.

     (2) The Governing Council intends to continue reinvesting, in full, the

principal payments from maturing securities purchased under the asset purchase

programme for an extended period of time past the date when it 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.

     (3) A new series of quarterly targeted longer-term refinancing operations

(TLTRO-III) will be launched, starting in September 2019 and ending in March

2021, each with a maturity of two years. These new operations will help to

preserve favourable bank lending conditions and the smooth transmission of

monetary policy. Under TLTRO-III, counterparties will be entitled to borrow up

to 30% of the stock of eligible loans as at 28 February 2019 at a rate indexed

to the interest rate on the main refinancing operations over the life of each

operation. Like the outstanding TLTRO programme, TLTRO-III will feature built-in

incentives for credit conditions to remain favourable. Further details on the

precise terms of TLTRO-III will be communicated in due course.

     (4) The Eurosystem's lending operations will continue to be conducted as

fixed rate tender procedures with full allotment for as long as necessary, and

at least until the end of the reserve maintenance period starting in March 2021.

     The President of the ECB will comment on the considerations underlying

these decisions at a press conference starting at 1430 CET today.

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

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com

[TOPICS: M$X$$$,M$$EC$]