At its meeting on 6 June 2019, the Governing Council of the European Central Bank (ECB) decided that 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. This represents another adjustment to the Governing Council’s forward guidance on interest rates. Previously, it had signalled that policy rates would remain unchanged at least until the end of 2019.

With regard to the non-standard monetary policy measures, the Governing Council intends to continue reinvesting, in full, the principal payments from maturing securities purchased under the asset purchase programme (APP) 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.

Modalities for longer-term refinancing operations

The Governing Council announced its intention to launch a new series of targeted longer-term refinancing operations (TLTRO III) back in March. The quarterly operations will start in September 2019 and end in March 2021 and have a maturity of two years each. Under these operations, counterparties are entitled to borrow up to a total of 30% of the stock of eligible loans as at 28 February 2019.

The Governing Council used its meeting on 6 June 2019 to flesh out the modalities of the TLTROs. Specifically, the interest rate for each operation will be set at a level of 10 basis points above the average rate applied to the Eurosystem’s main refinancing operations (MROs) over the life of the respective TLTRO. For counterparties whose eligible net lending exceeds their benchmark net lending, the rate applied to TLTRO III operations will be lower, and can be as low as the average interest rate on the deposit facility prevailing over the life of the respective operation plus 10 basis points.

The Governing Council had already conducted several TLTROs with a maturity of up to four years between the fourth quarter of 2014 and the second quarter of 2017. 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.