The European Central
Bank said Wednesday that it will launch an extraordinary bond purchase program
worth €750 billion in order to help insulate the region’s economy from the
likely coronavirus-lead recession.
The Pandemic Asset
Purchase Program, as the ECB has named it, was announced following an emergency
teleconference chaired by President Christie Lagarde, who assured investors
there were “no limits” to the central bank’s ability to deliver its
price stability mandate nor its commitment to the single currency.
The new bond-buying
program, which will run until at least the end of the year and will not include
‘capital key’ conditions that limit the ECB’s ability to buy certain amounts of
member state’s bonds, came just hours after Lagarde reportedly told European
leaders that lockdowns and travel restrictions could shrink the regional
economy by around 5% this year.
“The Governing
Council of the ECB is committed to playing its role in supporting all citizens
of the euro area through this extremely challenging time,” the bank said.
“To that end, the ECB will ensure that all sectors of the economy can
benefit from supportive financing conditions that enable them to absorb this
shock. This applies equally to families, firms, banks, and governments.”
“The Governing
Council will do everything necessary within its mandate. The Governing Council
is fully prepared to increase the size of its asset purchase programs and
adjust their composition, by as much as necessary and for as long as
needed,” the statement added. “It will explore all options and all
contingencies to support the economy through this shock.”
The euro was marked
0.4% higher against the U.S. dollar following news of the new quantitative
easing program to change hands at 1.0952.
Last week, the ECB
defied market forecasts when it made no changes to its three key interest rates
but pledged instead to re-open its dormant quantitative easing program to
support the economy as it grapples with the coronavirus pandemic.
The ECB said it will offer a “temporary envelope” of asset purchases, up to €120 billion, and added to target lending programs, known as TLTROS, that rewards regional banks for lending cash into the real economy. It also gave banks extra wiggle room on capital buffers they have been fortifying since the global financial crisis, freeing-up more cash for struggling lenders.
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