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ECB increases PEPP crisis program by 500 billion euros

D.he European Central Bank is fighting the economic consequences of the Corona crisis with further billions. The ECB emergency purchase program for government bonds and corporate securities (PEPP) will be expanded by 500 billion euros to 1.85 trillion euros, as the central bank announced in Frankfurt on Thursday. The end of the term was extended by nine months to March 2022. As expected, the key interest rate in the euro area remains at the record low of zero percent.

Commercial banks still have to pay 0.5 percent interest when they park money at the central bank. Exemptions for certain sums are intended to relieve the institutes of the costs. At the same time, however, the ECB is supplying commercial banks with further particularly cheap long-term loans (PELTROs) and relaxing the conditions for long-term loans that are already running.

In June, the central bank had almost doubled the volume of the emergency purchase program PEPP (Pandemic Emergency Purchase Program) launched in March to 1.35 trillion euros. The purpose of the purchases is to keep market rates low for governments and companies alike.

Monetary watchdog in anti-crisis mode for years

After the council meeting in October, the monetary authorities left no doubt that they wanted to step up again. “Even if the second wave of the virus turns out to be less violent than the first, it does not pose a lesser threat to the economy,” said ECB President Christine Lagarde recently. The Frenchwoman emphasized: “The ECB was there in the first wave and will also be there in the second wave.” After the recovery in the summer months, concerns about the economy are currently growing. “The Eurozone needs fresh support to get through the second lockdown and to start with a recovery in the coming year,” said ING Germany chief economist Carsten Brzeski.

The main goal of the ECB is still a balanced price level with a medium-term inflation rate of a little less than 2.0 percent in the common currency area. This target value has not been achieved for years. In November, the inflation rate in the euro area was minus 0.3 percent.

Europe’s currency watchdogs have therefore been in anti-crisis mode for years. The central bank’s other bond purchase programs, which have been running with interruption since March 2015, had already reached a huge volume of just over three trillion euros at the end of November.

The ECB has launched a comprehensive review of its monetary policy strategy. The central bank wants to take a close look at its formulation of price stability as well as the monetary policy instruments and all of its communication. There are also questions about the consequences, for example, of climate change or inequality, for the goal of price stability.

Holger Schmieding, chief economist at Berenberg Bank, was not very surprised. : The ECB had remained at the lower end of expectations and had adjusted technical details of its programs in order to increase the monetary policy impulse.

Fritzi Köhler-Geib, chief economist at KfW, compared the measures with refueling when the tank was still half full. But in the end, the funds made available do not have to be used up in full. Overall, the central bank delivered, said Schmieding. “As soon as the second wave of the pandemic has expired, the monetary policy tailwind should noticeably boost the economy, at the latest from April next year.”

The measures made the euro appreciate. The common currency rose to $ 1.2116 shortly after the decision.

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