The Governing Council of the European Central Bank decided on January 21 to reconfirm its very accommodative monetary policy stance.
First, 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 per cent, 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, two per cent within its projection horizon, and such convergence has been consistently reflected in underlying inflation dynamics.
Second, the Governing Council will continue the purchases under the pandemic emergency purchase programme (PEPP) with a total envelope of €1,850 billion. The Governing Council will conduct net asset purchases under the PEPP until at least the end of March 2022 and, in any case, until it judges that the coronavirus crisis phase is over. The purchases under the PEPP will be conducted to preserve favourable financing conditions over the pandemic period.
If favourable financing conditions can be maintained with asset purchase flows that do not exhaust the envelope over the net purchase horizon of the PEPP, the envelope need not be used in full. Equally, the envelope can be recalibrated if required to maintain favourable financing conditions to help counter the negative pandemic shock to the path of inflation.
The Governing Council will continue to reinvest the principal payments from maturing securities purchased under the PEPP until at least the end of 2023. In any case, the future roll-off of the PEPP portfolio will be managed to avoid interference with the appropriate monetary policy stance.
Third, net purchases under the asset purchase programme (APP) will continue at a monthly pace of €20 billion. The Governing Council continues to expect monthly net asset purchases under the APP 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.
The Governing Council also intends to continue reinvesting, in full, the principal payments from maturing securities purchased under the APP for an extended period of time past the date when it 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.
The Governing Council will continue to provide ample liquidity through its refinancing operations
Finally, the Governing Council will continue to provide ample liquidity through its refinancing operations. In particular, the third series of targeted longer-term refinancing operations remains an attractive source of funding for banks, supporting bank lending to firms and households.
The Governing Council continues to stand ready to adjust all of its instruments, as appropriate, to ensure that inflation moves towards its aim in a sustained manner, in line with its commitment to symmetry.
ECB monetary operations
On January 18, the ECB announced the seven-day MRO. The operation was conducted on January 19, 2021 and attracted bids from euro area eligible counterparties of €0.23 billion, €0.29 billion less 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 zero per cent, in accordance with current ECB policy.
On January 20, the ECB conducted the seven-day and 84-day US dollar funding operations through collateralised lending in conjunction with the US Federal Reserve. The seven-day USD operation attracted bids of $0.06 billion, which was allotted in full at a fixed rate of 0.34 per cent. The 84-day USD operation attracted bids of $0.02 billion, also allotted in full at a fixed rate of 0.33 per cent.
Domestic Treasury bill market
In the domestic primary market for Treasury bills, the Treasury invited tenders for 182-day and 273-day bills for settlement value January 21, maturing on July 22 and October 21, respectively. Bids of €88 million were submitted for the 182-day bills, with the Treasury accepting €13.50 million, while bids of €89 million were submitted for the 273-day bills, with the Treasury accepting €6.50 million. Since €7 million worth of bills matured during the week, the outstanding balance of Treasury bills increased by €13 million, standing at €682 million.
The yield from the 182-day bill auction was -0.467 per cent, an increase of 2.5 basis points from bids with a similar tenor issued on January 14, representing a bid price of €100.2367 per €100 nominal. The yield from the 273-day bill auction was -0.476 per cent, an increase of 1.7 basis points from bids with a similar tenor issued on January 7, representing a bid price of €100.3623 per €100 nominal.
During the week under review, there was no trading on the Malta Stock Exchange.
Today, the Treasury will invite tenders for 91-day bills and 182-day bills maturing on April 29, and July 29, 2021, respectively.