The ECB Governing Council intends to launch a new round of targeted longer-term refinancing operations (TLTROs). Following its monetary policy meeting, it announced that, from September 2019 to March 2021, the ECB will launch one such operation each quarter with a maturity of two years. The interest rate will be indexed to the main refinancing rate over the life of the operation. Under these operations, banks will be entitled to borrow up to 30% of their stock of eligible loans (as at 28 February 2019). Further details concerning these operations will be communicated in due course. As ECB President Mario Draghi said at a press conference in Frankfurt am Main, these operations are intended to “help to preserve favourable bank lending conditions and the smooth transmission of monetary policy”.

Between the fourth quarter of 2014 and the second quarter of 2017, the ECB Governing Council had already conducted several TLTROs with a maturity of up to four years. The basic idea was that, the more loans given by commercial banks to the non-financial sector, the more favourable the interest rate terms of the TLTROs were for these commercial banks. The interest rate on these loans was even able to become negative.

Key interest rates unchanged

The ECB also announced that it would continue to leave its key interest rates unchanged, meaning that policy rates would remain at their present levels at least through the end of 2019, 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. The main refinancing rate, the key rate for supplying commercial banks with money, thus remains at 0.0%, where it has been since March 2016. The deposit facility rate was held steady at -0.4%. The ECB Governing Council had previously signalled its intent not to make any interest rate moves only until the end of the summer of 2019.

Growth projection slashed

Due to the gloomier economic outlook, the ECB also slashed its projections for euro area growth for this year and next. It now expects gross domestic product (GDP) to grow by only 1.1% in 2019, as against its outlook in December, in which growth of 1.7% had been expected. The projection for 2020 now stands at 1.6% instead of 1.7%. The ECB’s projection for GDP growth in 2021 remains unchanged at 1.5%. At the press conference, Mr Draghi noted that the risks surrounding the euro area growth outlook were still tilted to the downside, on account of the persistence of uncertainties related to geopolitical factors, the threat of protectionism and vulnerabilities in emerging markets. 

The ECB revised its inflation projections downwards as well; it now expects an inflation rate of 1.2% (previously 1.6%) for the current year. Its staff projections foresee annual HICP inflation at 1.5% in 2020 (previously 1.7%) and 1.6% in 2021 (previously 1.8%).