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ECB Extends Forward Guidance, Will Keep Rates Unchanged Until First Half Of 2020, Announces TLTRO Terms

Courtesy of ZeroHedge. View original post here.

With the ECB scrambling to offset the accelerating European contraction, moments ago Mario Draghi announced that the three main rates would remain unchanged (as expected) at least through the first half of 2020, extending the "patient" forward guidance period, from "the end of 2019" previously. 

The Governing Council now expects the key ECB interest rates to remain at their present levels at least through the first half of 2020, and in any case for as long as necessary to ensure the continued sustained convergence of inflation to levels that are below, but close to, 2% over the medium term.

And while the ECB also noted that it would continue reinvesting principal bond maturities, "for as long as necessary to maintain favorable liquidity conditions and an ample degree of monetary accommodation" as expected, the notable other change in today's statement was the ECB's disclosure of the terms of the TLTRO, which "will be set at a level that is 10 basis points above the average rate applied in the Eurosystem’s main refinancing operations over the life of the respective TLTRO."  For those banks whose eligible net lending exceeds a benchmark, "the rate applied in TLTRO III will be lower and can be as low as the average interest rate on the deposit facility prevailing over the life of the operation plus 10 basis points."

While in line with expectations, the TLTRO rate was seen as slightly less favorable than expected by the market.

Full announcement:

At today’s meeting, which was held in Vilnius, the Governing Council of the European Central Bank (ECB) took the following monetary policy decisions:

(1) The interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility will remain unchanged at 0.00%, 0.25% and -0.40% respectively. The Governing Council now expects the key ECB interest rates to remain at their present levels at least through the first half of 2020, and in any case for as long as necessary to ensure the continued sustained convergence of inflation to levels that are below, but close to, 2% over the medium term.

(2) The Governing Council intends to continue reinvesting, in full, the principal payments from maturing securities purchased under the asset purchase programme 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.

(3) Regarding the modalities of the new series of quarterly targeted longer-term refinancing operations (TLTRO III), the Governing Council decided that the interest rate in each operation will be set at a level that is 10 basis points above the average rate applied in the Eurosystem’s main refinancing operations over the life of the respective TLTRO. For banks whose eligible net lending exceeds a benchmark, the rate applied in TLTRO III will be lower and can be as low as the average interest rate on the deposit facility prevailing over the life of the operation plus 10 basis points.

The President of the ECB will comment on the considerations underlying these

And a redline comparison to the prior statement:

In kneejerk reaction, the Euro first tumbled then spiked while German bonds are steady after the ECB extended forward guidance: the German 10y yield steady at -0.229%, just shy of an all time low, while Italy's 10y up 2 bps to 2.48%. At the same time, the 5y5y inflation swaps steady at 1.28%, close to the lowest level since 2016 as the ECB's credibility is fading away with every single announcement.

Watch this space for Draghi's press conference in 45 minutes.


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