European Central Bank (2014) Monthly Bulletin: September, ECB–Eurosystem, September.
Based on its regular economic and monetary analyses, the Governing Council decided at its meeting on 4 September 2014 to lower the interest rate on the main refinancing operations of the Eurosystem by 10 basis points to 0.05% and the rate on the marginal lending facility by 10 basis points to 0.30%. The rate on the deposit facility was lowered by 10 basis points to -0.20%. In addition, the Governing Council decided to start purchasing non-financial private sector assets. The Eurosystem will purchase a broad portfolio of simple and transparent asset-backed securities (ABSs) with underlying assets consisting of claims against the euro area non-financial private sector under an ABS purchase programme (ABSPP). This reflects the role of the ABS market in facilitating new credit flows to the economy and follows the intensification of preparatory work on this matter, as decided by the Governing Council in June. In parallel, the Eurosystem will also purchase a broad portfolio of euro-denominated covered bonds issued by MFIs domiciled in the euro area under a new covered bond purchase programme (CBPP3). Interventions under these programmes will start in October 2014. The detailed modalities of these programmes will be announced after the Governing Council meeting of 2 October 2014. The newly decided measures, together with the targeted longer-term refinancing operations which will be conducted shortly, will have a sizeable impact on the Eurosystem balance sheet.
These decisions will add to the range of monetary policy measures taken over recent months. In particular, they will support the Governing Council’s forward guidance on the key ECB interest rates and reflect the fact that there are significant and increasing differences in the monetary policy cycle between major advanced economies. They will further enhance the functioning of the monetary policy transmission mechanism and support the provision of credit to the broad economy. In its analysis, the Governing Council took into account the overall subdued outlook for inflation, the weakening in the euro area’s growth momentum over the recent past and the continued subdued monetary and credit dynamics. The decisions of 4 September 2014, together with the other measures in place, were taken with a view to underpinning the firm anchoring of medium to long-term inflation expectations, in line with the Governing Council’s aim of maintaining inflation rates below, but close to, 2%. As these measures work their way through to the economy they will contribute to a return of inflation rates to levels closer to 2%. Should it become necessary to further address risks of too prolonged a period of low inflation, the Governing Council is unanimous in its commitment to using additional unconventional instruments within its mandate.
Regarding the economic analysis, following four quarters of moderate expansion, euro area real GDP remained unchanged in the second quarter of this year compared with the previous quarter. While it partly reflected one-off factors, this outcome was weaker than expected. With regard to the third quarter, survey data available up to August indicate a loss in cyclical growth momentum, while remaining consistent with a modest expansion.
Relevant posts:
- European Central Bank (2014) “Monthly Bulletin“, ECB Eurosystem, August.
- European Central Bank (2014) “Monthly Bulletin“, ECB Eurosystem, June.
- European Central Bank (2014) “Monthly Bulletin“, February.