The European Central Bank (ECB) lowered one of its key policy rates and restarted its asset purchases, and signaled it could loosen its policy further to ensure inflation rises towards its target.
The ECB, the central bank for the 19 counties that share the euro, cut its deposit rate by another 10 basis points to minus 0.50 percent, the first cut since March 2016, but left its benchmark refinancing rate steady at 0.0 percent and the lending rate at 0.25 percent.
The ECB omitted its previous reference of keeping rates low through the first half of 2020 and said it now expects 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 consistent reflected in underlying inflation dynamics.”
As signaled in July, the ECB restarted its asset purchase program – known as quantitative easing – and will be buying securities worth 20 billion euros from Nov. 1, with the program to “run as long as necessary to reinforce the accommodative impact of its policy rates, and to end shortly before its starts raising the key ECB interest rates.”
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In addition, reinvestments of any maturing securities will continue “for an extended period” past the date the ECB stars raising rates, or as long as necessary to maintain favorable liquidity conditions.
The ECB, which in March decided to proceed with another round of targeted longer-term refinancing operations, TLTRO III, said this would be adjusted to ensure favorable bank lending conditions while a two-tier system for reserve renumeration would be introduced that exempts parts of banks’ holdings of excess liquidity from the negative deposit facility.
The European Central Bank issued the following statement: