Asset purchase programmes
In addition to the standard monetary policy instruments of the Eurosystem, the Banque de France also implements non-standard measures aimed at supporting lending to the economy and improving monetary policy transmission.
To counter the effects of the financial crisis, from 2008 onwards central banks began to implement exceptional measures that went beyond “standard” monetary policy. After already cutting key interest rates to very low levels, they devised new methods aimed at improving financing conditions in the real economy. We refer to these as “non-standard” measures and they may take several forms:
The adoption of negative interest rates
The ECB's deposit facility rate moved into negative territory in June 2014 and remained there until the summer of 2022. Consequently, prevailing interest rate benchmarks on the money market fell significantly below zero, reinforcing the accommodative nature of monetary policy with the aim of getting back to the inflation target.
Using a signal effect by adopting forward guidance consists of providing indications to the markets about the future path of key interest rates. The ECB used forward guidance for the first time in July 2013.
Targeted longer-term refinancing operations (TLTROs)
Targeted longer-term refinancing operations involve providing long-term financing to the banking sector on attractive terms in order to safeguard borrowing conditions in the sector and stimulate bank lending to the real economy. The ECB has set up several targeted longer-term refinancing operations (TLTROs) since 2014.
Quantitative easing is a form of non-standard monetary policy where central banks intervene massively and over a prolonged period in financial markets by buying large quantities of financial assets from the banks. By buying these securities from banks, central banks increase the quantity of liquidity in circulation and force interest rates down, thereby indirectly countering the risk of deflation and a slowdown in growth.
The ECB launched its first quantitative easing programme, the APP (asset purchase programme), in March 2015 to support monetary policy transmission mechanisms and provide the flexibility needed to ensure price stability. The APP includes:
Since the programme was set up, and excluding the period when net asset purchases were halted, between €15 billion and €80 billion worth of assets have been purchased every month.
In response to the health crisis, the ECB's Governing Council set up an emergency purchase programme in March 2020 – the pandemic emergency purchase programme (PEPP) – to mitigate the serious risks to monetary policy transmission mechanisms and to the euro area's economic outlook arising from the coronavirus epidemic (Covid-19).
The assets eligible for the APP programme are also eligible for the PEPP programme, together with Greek sovereign securities and commercial papers with residual maturities of at least 70 days.
The programme's initial envelope of €750 billion has been gradually increased to €1,850 billion.
With progress in terms of economic recovery and increasing inflationary pressures, the ECB's Governing Council decided:
To ensure the effective transmission of monetary policy during the normalisation process, at its meeting in July 2022, the Governing Council created the Transmission Protection Instrument (TPI). This is a purchase programme that may be activated in the event of unwarranted and disorderly market dynamics that pose a serious threat to the transmission of monetary policy within the euro area. If the TPI is activated, unlike purchases made under the APP programme, purchases must not have a permanent impact on the Eurosystem balance sheet, and therefore on monetary policy stance.
Value in billions of euro of the assets held by the Eurosystem at 31 December 2022 under the APP programme (2,585 under the PSPP programme, 344 under the CSPP programme, 302 under the CBPP3 programme, 23 under the ABSP programme)
Value in billions of euro of the assets held by the Eurosystem at 31 December 2022 under the PEPP programme.
Securities from public issuers purchased under the PSPP and PEPP programmes and securities purchased under the CSPP programme are subject to a securities lending facility to improve market liquidity, especially when there is a collateral shortage. This lending may take place:
Average monthly outstanding amount in billions of euro of loans contracted under the lending facility in December 2022