ECB expands, extends bond-buying programme to fight pandemic

ECB expands, extends bond-buying programme to fight pandemic

© Reuters. FILE PHOTO: The headquarters of the European Central Bank in Frankfurt, Germany,

FRANKFURT (Reuters) – The European Central Bank beefed up its bond-buying programme on Thursday in its latest effort to support a euro zone economy pummelled by more than two months of shutdowns due to the coronavirus pandemic.

The ECB increased the size of its Pandemic Emergency Purchase Programme (PEPP) to 1.35 trillion euros ($1.52 trillion) from 750 billion euros and extended it until June 2021 at the earliest, with a pledge to reinvest proceeds until at least the end of 2022.

The move was designed to provide breathing space to governments running large budget deficits to dull the impact of the worst recession since World War Two.

“In response to the pandemic-related downward revision to inflation over the projection horizon, the PEPP expansion will further ease the general monetary policy stance, supporting funding conditions in the real economy, especially for businesses and households,” the ECB said.

Euro zone businesses suffered another devastating contraction in activity in May and while there are signs the worst is over, it could be months before there is a return to growth, a survey showed on Wednesday.

But financial markets have been markedly more optimistic in recent weeks, with euro zone shares now less than 20% below their February peak, in a sign investors were betting on a return to normal in the coming months.

Hope for a pan-European recovery fund and a raft of ECB easing measures since March, including massive purchases of commercial paper, have also helped restore sentiment.

Thursday’s decision leaves the ECB’s benchmark Deposit Facility Rate at -0.5%, meaning banks are charged that annual rate for parking idle cash at the central bank.

The rate on the ECB’s Main Refinancing Operations, which banks can tap to obtain one-week credit from the central bank, was left at zero while the rate on overnight liquidity was fixed at 0.25%.

ECB President Christine Lagarde will hold an online news conference at 1330 GMT.

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