ECB decisions

At its meeting held on March 12,  the Governing Council of the European Central Bank (ECB) decided on a comprehensive package of monetary policy measures:

(1) Additional longer-term refinancing operations (LTROs) will be conducted, temporarily, to provide immediate liquidity support to the euro area financial system. Although the Governing Council does not see material signs of strains in money markets or liquidity shortages in the banking system, these operations will provide an effective backstop in case of need. They will be carried out through a fixed rate tender procedure with full allotment, with an interest rate that is equal to the average rate on the deposit facility. The LTROs will provide liquidity at favourable terms to bridge the period until the third series of the targeted longer-term refinancing operation (TLTRO) in June 2020.

(2) In TLTRO III, considerably more favourable terms will be applied during the period from June 2020 to June 2021 to all TLTRO III operations outstanding during that same time. These operations will support bank lending to those affected most by the spread of the coronavirus, in particular small and medium-sized enterprises. Throughout this period, the interest rate on these TLTRO III operations will be 25 basis points below the average rate applied in the Eurosystem’s main refinancing operations. For counterparties that maintain their levels of credit provision, the rate applied in these operations will be lower, and, over the period ending in June 2021, can be as low as 25 basis points below the average interest rate on the deposit facility. Moreover, the maximum total amount that counterparties will henceforth be entitled to borrow in TLTRO III operations is raised to 50% of their stock of eligible loans as at February 28, 2019. In this context, the Governing Council will mandate the Eurosystem committees to investigate collateral easing measures to ensure that counterparties continue to be able to make full use of the funding support.

(3) A temporary envelope of additional net asset purchases of €120 billion will be added until the end of the year, ensuring a strong contribution from the private sector purchase programmes.

In combination with the existing asset purchase programme (APP), this will support favourable financing conditions for  the real economy in times of heightened uncertainty.

The Governing Council continues to expect net asset purchases to run for as long as necessary to reinforce the accommodative impact of its policy rates, and to end shortly before it starts raising the key ECB interest rates.

(4) The interest rate on the main refinancing operations (MRO) and the interest rates on the marginal lending facility and the deposit facility will remain unchanged at 0.00%, 0.25% and -0.50% respectively. The Governing Council expects the key ECB interest rates to remain at their present or lower levels until it has seen the inflation outlook robustly converge to a level sufficiently close to, but below, 2% within its projection horizon, and such convergence has been consistently reflected in underlying inflation dynamics.

(5) Reinvestments of the principal payments from maturing securities purchased under the APP will continue, in full, for an extended period of time past the date when the Governing Council 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.

ECB Monetary Operations

On March 9, the ECB announced a seven-day MRO. The operation was conducted on March 10, and attracted bids from euro area eligible counterparties of €2.16 billion, €0.77 billion more than the bid amount of the previous week.

The amount was allotted in full at a fixed rate equivalent to the prevailing MRO rate of 0.00%, in accordance with current ECB policy.

On March 11, the ECB conducted a seven-day US dollar funding operation through collateralised lending in conjunction with the US Federal Reserve. This operation attracted bids of $0.05 billion, which was allotted in full at a fixed rate of 1.24%.

During the week under review, participants from the second series of TLTROs had the option of terminating or reducing their outstanding amount in these operations before maturity. Accordingly, on March 25, a total of €92.62 billion will be repaid.

Domestic Treasury bill market

In the domestic primary market for Treasury bills, the Treasury invited tenders for 91-day and 182-day bills for settlement value March 12, maturing on June 11, and September 10, respectively. Bids of €35 million were submitted for the 91-day bills, with the Treasury accepting €30.00 million, while bids of €25 million were submitted for the 182-day bills, with the Treasury accepting €8 million.

Since €38 million worth of bills matured during the week, the outstanding balance of Treasury bills remained unchanged, standing at €421 million.

The yield from the 91-day bill auction was -0.419%, an increase of 0.2 basis point from bids with a similar tenor issued on March 5, representing a bid price of €100.1060 per €100 nominal. 

The yield from the 182-day bill auction was -0.405%, an increase of 1.0 basis points from bids with a similar tenor issued on February 6, representing a bid price of €100.2052 per €100 nominal.

During the week under review, there was no trading on the Malta Stock Exchange.

Yesterday, the Treasury invited tenders for 92-day bills and 183-day bills maturing on June 18, and September 17, respectively.