The European Central Bank (ECB), in order to pursue its mission to maintain price stability and support economic activity in the euro area, announced on 5 June 2014, a series of measures for the additional easing of monetary policy.
The ECB took the historic decision of reducing, for the first time since the euro introduction in 1999, the deposit facility rate to negative levels, i.e. imposing a negative interest rate on deposits maintained by financial institutions with the National Central Banks. The negative interest rate will apply, inter alia, on reserves held by financial institutions with central banks in excess of the reserve requirements.
The measures include the reduction in ECB policy rates and the granting of targeted loans to financial institutions, with the aim of strengthening bank lending to the real economy.
In particular, the Governing Council of the ECB decided the following main measures:
1. The ECB policy rates, as from 11 June 2014, will be:
· The interest rate on the main refinancing operations of the Eurosystem will decrease by 10 basis points (b.p.), from 0,25% to 0,15%.
· The marginal lending facility rate will decrease by 35 b.p. to 0,40%.
· The deposit facility rate will decrease by 10 b.p. to -0,10%.
2. To conduct a series of targeted longer-term refinancing operations (TLTROs) with duration of approximately four years, in order to strengthen bank lending to the non-financial private sector in the euro area. The initial potential amount of TLTROs is estimated at around €400 billion.
3. To intensify preparations related to outright purchases of Asset-Backed Securities (ABS), in order to facilitate new credit flows to the economy.
4. To continue the conduct of main refinancing operations (MROs) as fixed rate tender procedures with full allotment for as long as necessary and at least until December 2016.
5. To suspend the absorption of liquidity injected under the Securities Markets Programme (SMP).
The decision to provide long-term liquidity and the continuation of fixed rate tenders with full allotment for at least until the end of 2016, are expected to positively impact the financing plans of financial institutions and enhance credit to the real economy.