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MNI REVIEW: ECB Launches Pandemic LTRO, Eases TLTRO Terms

--Launches Pandemic LTRO
--Cuts TLTRO III Rates
--Says Prepared To Adjust PEPP As Necessary
By Luke Heighton
     FRANKFURT (MNI) - The European Central Bank eased conditions for existing
targeted longer-term repurchasing operations for banks, announced a new EUR3
trillion Pandemic Emergency LTRO and stressed its willingness to adjust the
size, composition and duration of its emergency asset purchasing operations "by
as much as necessary and for as long as needed," following Thursday's meeting of
the Governing Council.
     Interest rates for TLTRO III were cut by 50 basis points from June 2020 to
June 2021, taking the minimum rate to -1.0%. The new series of non-targeted
pandemic emergency longer-term refinancing operations (PELTROs) will consist of
seven additional refinancing operations commencing in May 2020 and maturing in a
staggered sequence between July and September 2021, at an interest rate that is
25 basis points below the average rate on the main refinancing operations.
     There was no increase in the EUR750 billion envelope of the pandemic
emergency purchasing programme, which is set to run until at least the end of
this year. However, President Christine Lagarde acknowledged for the first time,
in answer to questions from journalists, that PEPP could be extended beyond
2020, that issuer limits could be revised for the temporary duration of the
programme, and that PEPP holdings are legally distinct from those under its
earlier asset purchase programme.
     Net APP purchases were kept at a monthly pace of EUR20 billion, in addition
to those made under the EUR120 billion temporary envelope until the end of the
year, with reinvestments of principal payments from maturing securities
continuing. The ECB's key interest rates were left unchanged.
     "The Governing Council is fully prepared to increase the size of the PEPP
and adjust its composition, by as much as necessary and for as long as needed,"
Lagarde said, adding that the ECB "will not tolerate any risk of fragmentation,"
and would deploy its tools "fully-fledged."
     "We will want to make sure credit flows to the economy, that our monetary
policy stance and transmission are effective," she said, "and we will do so in
whichever country needs to benefit from our determinations."
     Lagarde said the euro area was facing an economic contraction "of a
magnitude and speed that are unprecedented in peacetime," with the speed and
scale of its recovery "highly uncertain." Eurozone GDP for 2020 could fall by
between -5% and -12%, Lagarde said, adding: "We are looking at way down and
probably out in 2021 in terms of return to a 'new normal'."
     Asked whether the Governing Council has discussed the eligibility of junk
bonds for PEPP, Lagarde replied that it had not. However, she continued, "we are
in such uncertain times and there is such a threat to the economic fabrics of
our societies that we have to be open minded and look at all possibilities, so
I'm not closing off anything in that respect." Lagarde also appeared to suggest
that the ECB's Outright Monetary Transactions, while still an active part of the
ECB's monetary policy toolbox, had been superseded by the measures taken in
recent weeks. "The best tool we have in our toolbox is indeed the PEPP," she
--MNI Frankfurt Bureau; +49-69-720-146; email:
--MNI London Bureau; +44 203 865 3829; email:
[TOPICS: M$X$$$,MT$$$$,M$$EC$]

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