On 26 October 2017, the Governing Council of the European Central Bank (ECB) made the decision to scale back its non-standard monetary policy measures. Purchases under the asset purchase programme (APP) are set to continue at the current monthly pace of €60 billion until the end of 2017. From January 2018, the net asset purchases are then to continue at a monthly pace of €30 billion until the end of September 2018, or beyond, if necessary.

The ECB went on to state following the Governing Council meeting that, in any case, purchases under the APP are to continue until it sees a sustained adjustment in the path of inflation consistent with its inflation aim. It added that the Governing Council stands ready to increase the APP in terms of size and/or duration if the outlook becomes less favourable or if financial conditions become inconsistent with further progress towards a sustained adjustment in the path of inflation.

The aim of the Eurosystem’s monetary policy measures is to raise inflation to below, but close to, 2% in the medium term. This is the inflation rate, as measured by the Harmonised Index of Consumer Prices (HICP), that the ECB defines as price stability. As it happens, according to EU statistics agency Eurostat, the HICP for the euro area recorded a year-on-year rise of 1.5% in September 2017. ECB staff projections from September 2017 estimate that euro area consumer price inflation will be 1.5% this year, 1.2% in 2018 and 1.5% in 2019.

Reinvesting principal payments from maturing securities

As the ECB went on to explain, principal payments from maturing securities purchased under the APP will be reinvested for an extended period of time after the end of its net asset purchases, and in any case for as long as necessary. "This will contribute both to favourable liquidity conditions and to an appropriate monetary policy stance," said the ECB.

According to the ECB, great efforts will be made to conduct the reinvestments in a flexible and timely manner in the month that the securities fall due, or in the subsequent two months if justified by market liquidity conditions. In the case of bonds that were purchased under the public sector purchase programme (PSPP) and fall due before net asset purchases come to an end, reinvestments are to be made in the same jurisdiction as principal payments.

Monthly report on maturities

To create greater transparency about the reinvestment of maturing securities, the Governing Council of the ECB has decided to publish from now on, with a monthly frequency, the expected monthly redemption amounts over a rolling 12-month horizon. The redemption data will also be differentiated by the four individual components of the asset purchase programme, i.e. the asset-backed securities purchase programme (ABSPP), the covered bond purchase programme (CBPP), the public sector purchase programme (PSPP) and the corporate sector purchase programme (CSPP). The first figures are scheduled to be published on 6 November.

Launch of the APP in March 2015

The asset purchase programme was launched in March 2015. It originally encompassed the purchase of government bonds, covered bonds and asset-backed securities, with a monthly purchase volume of €60 billion. The minimum remaining maturity was subsequently extended on multiple occasions and the total monthly volume temporarily increased to €80 billion. The Governing Council of the ECB also decided to expand the programme to include corporate sector bonds with sufficient credit quality and to loosen restrictions on the purchase of bonds issued by supranational institutions.

Key interest rates unchanged

The interest rate on the main refinancing operations, via which credit institutions can obtain central bank funds, remains at 0.0%. The Governing Council is also leaving the interest rate on the marginal lending facility, at which banks can borrow overnight funds from the ECB at very short notice, at 0.25%. The rate on the deposit facility will also remain unchanged at -0.4%. "The Governing Council continues to expect the key ECB interest rates to remain at their present levels for an extended period of time, and well past the horizon of the net asset purchases," stated the ECB.

The main refinancing operations and three-month longer-term refinancing operations will continue to be conducted as fixed rate tender procedures with full allotment for as long as