Quantitative easing

Isabel Schnabel: Monetary policy in changing conditions

Retrieved on:

星期四, 十一月 5, 2020

Financial services, Banking, Money, Macroeconomic policy, Monetary policy, Public finance, Central bank, Eurozone, Quantitative easing, Outright Monetary Transactions

SPEECHMonetary policy in changing conditions Speech by Isabel Schnabel, Member of the Executive Board of the ECB, at the second EBI Policy Conference on “Europe and the Covid-19 Crisis – Looking back and looking forward” Frankfurt, 4 November 2020 Europe is in the midst of the second wave of the coronavirus (COVID-19) pandemic.

Key Points:

SPEECH

Monetary policy in changing conditions

Speech by Isabel Schnabel, Member of the Executive Board of the ECB, at the second EBI Policy Conference on “Europe and the Covid-19 Crisis – Looking back and looking forward”

Frankfurt, 4 November 2020 Europe is in the midst of the second wave of the coronavirus (COVID-19) pandemic.
Since the start of the pandemic, monetary policy has contributed to mitigating the social and economic costs of this crisis.
In my remarks this afternoon, I will explain the ECBs response to the coronavirus crisis in more detail.
I will start by briefly recalling the measures that the Governing Council took in response to the first wave of infections in spring.

Monetary policy response to the first wave

The euro area sovereign bond market fragmented, causing spreads on lower-rated government bonds to rise sharply (see right chart slide 2).
At the same time, corporate credit spreads reached levels last seen in the midst of the euro area sovereign debt crisis.
In short, the very stability of our financial system was at risk and the transmission of our monetary policy was severely impaired.
Our response consisted of two carefully calibrated, mutually reinforcing and complementary pillars.
To help meet these objectives, purchases under the PEPP can be allocated flexibly across time, asset classes and jurisdictions.
These considerations form the core of the second pillar of our response: preserving favourable bank lending conditions and acting as a lender of last resort to solvent banks.
Between March and May alone, euro area banks extended 245 billion of credit to firms (see left chart slide 5).
Price and wage levels would probably have fallen significantly, running counter to our price stability mandate.

Downside risks to the economic outlook from the second wave

The exponential surge in new COVID-19 infections since early October has, however, visibly skewed the risks to the economic outlook for the fourth quarter of 2020 to the downside.
Incoming data point to an inversion in the trajectory of the euro area economy.
Most notably, this time new partial lockdowns have had a much more localised impact on financial markets.
Of course, the resilience in financial markets reflects, and is conditional on, the forceful monetary and fiscal policy response to the crisis.
In the current environment of exceptional uncertainty, it would be naive to take the stability of euro area bond markets for granted.
Investors have rather internalised that monetary policy will remain a stable and reliable source of support throughout the crisis.

Challenges for monetary policy

The current situation also highlights the much broader challenges that monetary policy is facing today and that we will be discussing as part of our ongoing monetary policy strategy review.
One relates to the transmission of monetary policy to the real economy in a low interest rate environment and in changing economic circumstances.
Let me briefly illustrate these challenges without offering any definitive answers.

State- and time-contingent monetary policy transmission

It depends, amongst other things, on the slope of the IS curve the curve that balances investments and savings.
This slope may be different when interest rates are low, or when they have been low for a protracted period of time.
[3] Academics and central bankers alike have focused on the slope of the Philips curve rather than the slope of the IS curve.
A few studies suggest that monetary policy transmission may be non-linear in the level of the interest rate.
[5] Before the pandemic, for example, we observed stagnation in households intentions to frontload major purchases (see left chart slide 8).
These developments highlight that the strength of monetary policy transmission may depend not only on the interest rate level but also on the state of the economy.
Such conditions may increase the lags with which policy actions are transmitted to the real economy.

Interaction between monetary policy and financial stability

The second challenge that monetary policy is facing today relates to potential side effects, in particular related to financial stability.
The pandemic highlighted that the interaction between monetary policy and financial stability is a two-way street.
In the early phase of the crisis, forceful monetary policy action preserved financial stability.
Our measures had a strong and immediately stabilising effect on both financial markets and the health and soundness of banks balance sheets.
This is the essence of the GDP-at-risk approach, which acknowledges the non-linear relationship between financial conditions and future economic growth.
Therefore, monetary policy cannot ignore financial stability risks.
Empirical evidence suggests that monetary policy, too, has a significant and lasting impact on house prices in the euro area.

Conclusion

Isabel Schnabel: Interview with Handelsblatt

Retrieved on:

星期四, 十一月 5, 2020

Economy, Macroeconomics, Finance, Pan-European Pension, Pensions, Personal finance, Financial economics, Euro, Inflation, Monetary policy, European Central Bank, Quantitative easing

INTERVIEWInterview with HandelsblattInterview with Isabel Schnabel, Member of the Executive Board of the ECB, conducted by Jan Mallien and Frank WiebeWill the impact on the economy be a repeat of what we already experienced in the spring?

Key Points:

INTERVIEW

Interview with Handelsblatt

Interview with Isabel Schnabel, Member of the Executive Board of the ECB, conducted by Jan Mallien and Frank Wiebe

Will the impact on the economy be a repeat of what we already experienced in the spring?
No, the effects are likely to be less pronounced this time, because the lockdown is more targeted.
It is a hard blow to the services sector, but manufacturing is not being shut down and is benefiting from Chinas strong recovery.
After a surprisingly good third quarter, we will likely see a marked decline in growth at the end of the year.
But it is crucial that these funds are deployed for investments that stimulate growth, such as promoting greener technologies or digitalisation.
Otherwise there may even be a pushback for European integration, as the sceptics would then feel vindicated.
The individual euro area countries have been affected very differently by the crisis.
The pandemic has affected euro area countries with varying degrees of severity, depending in part on their economic structures, such as the importance of tourism.
And the governments have different amounts of fiscal space with which to respond to the crisis.
That is exactly why the European fiscal package, which supports Member States according to the severity of the shock, is so important.
Through its pandemic emergency purchase programme (PEPP), the ECB is ensuring that our monetary policy is effective in all countries and is contributing to favourable financing conditions.
After the financial crisis, people underestimated how prolonged the downward effect of such a shock on inflation would be.
The PEPP was envisaged as a temporary response to the COVID-19 pandemic, aimed for one at preventing a slide in inflation.
However, it should not be forgotten that initially this would only concern corporate bonds, while we primarily purchase government bonds.
But how sure are you that the central bank is not depressing real interest rates at least in part?

Isabel Schnabel: Monetary policy in changing conditions

Retrieved on:

星期四, 十一月 5, 2020

Financial services, Banking, Money, Macroeconomic policy, Monetary policy, Public finance, Central bank, Eurozone, Quantitative easing, Outright Monetary Transactions

SPEECHMonetary policy in changing conditions Speech by Isabel Schnabel, Member of the Executive Board of the ECB, at the second EBI Policy Conference on “Europe and the Covid-19 Crisis – Looking back and looking forward” Frankfurt, 4 November 2020 Europe is in the midst of the second wave of the coronavirus (COVID-19) pandemic.

Key Points:

SPEECH

Monetary policy in changing conditions

Speech by Isabel Schnabel, Member of the Executive Board of the ECB, at the second EBI Policy Conference on “Europe and the Covid-19 Crisis – Looking back and looking forward”

Frankfurt, 4 November 2020 Europe is in the midst of the second wave of the coronavirus (COVID-19) pandemic.
Since the start of the pandemic, monetary policy has contributed to mitigating the social and economic costs of this crisis.
In my remarks this afternoon, I will explain the ECBs response to the coronavirus crisis in more detail.
I will start by briefly recalling the measures that the Governing Council took in response to the first wave of infections in spring.

Monetary policy response to the first wave

The euro area sovereign bond market fragmented, causing spreads on lower-rated government bonds to rise sharply (see right chart slide 2).
At the same time, corporate credit spreads reached levels last seen in the midst of the euro area sovereign debt crisis.
In short, the very stability of our financial system was at risk and the transmission of our monetary policy was severely impaired.
Our response consisted of two carefully calibrated, mutually reinforcing and complementary pillars.
To help meet these objectives, purchases under the PEPP can be allocated flexibly across time, asset classes and jurisdictions.
These considerations form the core of the second pillar of our response: preserving favourable bank lending conditions and acting as a lender of last resort to solvent banks.
Between March and May alone, euro area banks extended 245 billion of credit to firms (see left chart slide 5).
Price and wage levels would probably have fallen significantly, running counter to our price stability mandate.

Downside risks to the economic outlook from the second wave

The exponential surge in new COVID-19 infections since early October has, however, visibly skewed the risks to the economic outlook for the fourth quarter of 2020 to the downside.
Incoming data point to an inversion in the trajectory of the euro area economy.
Most notably, this time new partial lockdowns have had a much more localised impact on financial markets.
Of course, the resilience in financial markets reflects, and is conditional on, the forceful monetary and fiscal policy response to the crisis.
In the current environment of exceptional uncertainty, it would be naive to take the stability of euro area bond markets for granted.
Investors have rather internalised that monetary policy will remain a stable and reliable source of support throughout the crisis.

Challenges for monetary policy

The current situation also highlights the much broader challenges that monetary policy is facing today and that we will be discussing as part of our ongoing monetary policy strategy review.
One relates to the transmission of monetary policy to the real economy in a low interest rate environment and in changing economic circumstances.
Let me briefly illustrate these challenges without offering any definitive answers.

State- and time-contingent monetary policy transmission

It depends, amongst other things, on the slope of the IS curve the curve that balances investments and savings.
This slope may be different when interest rates are low, or when they have been low for a protracted period of time.
[3] Academics and central bankers alike have focused on the slope of the Philips curve rather than the slope of the IS curve.
A few studies suggest that monetary policy transmission may be non-linear in the level of the interest rate.
[5] Before the pandemic, for example, we observed stagnation in households intentions to frontload major purchases (see left chart slide 8).
These developments highlight that the strength of monetary policy transmission may depend not only on the interest rate level but also on the state of the economy.
Such conditions may increase the lags with which policy actions are transmitted to the real economy.

Interaction between monetary policy and financial stability

The second challenge that monetary policy is facing today relates to potential side effects, in particular related to financial stability.
The pandemic highlighted that the interaction between monetary policy and financial stability is a two-way street.
In the early phase of the crisis, forceful monetary policy action preserved financial stability.
Our measures had a strong and immediately stabilising effect on both financial markets and the health and soundness of banks balance sheets.
This is the essence of the GDP-at-risk approach, which acknowledges the non-linear relationship between financial conditions and future economic growth.
Therefore, monetary policy cannot ignore financial stability risks.
Empirical evidence suggests that monetary policy, too, has a significant and lasting impact on house prices in the euro area.

Conclusion

Isabel Schnabel: Interview with Handelsblatt

Retrieved on:

星期三, 十一月 4, 2020

Economy, Macroeconomics, Finance, Pan-European Pension, Pensions, Personal finance, Financial economics, Euro, Inflation, Monetary policy, European Central Bank, Quantitative easing

INTERVIEWInterview with HandelsblattInterview with Isabel Schnabel, Member of the Executive Board of the ECB, conducted by Jan Mallien and Frank WiebeWill the impact on the economy be a repeat of what we already experienced in the spring?

Key Points:

INTERVIEW

Interview with Handelsblatt

Interview with Isabel Schnabel, Member of the Executive Board of the ECB, conducted by Jan Mallien and Frank Wiebe

Will the impact on the economy be a repeat of what we already experienced in the spring?
No, the effects are likely to be less pronounced this time, because the lockdown is more targeted.
It is a hard blow to the services sector, but manufacturing is not being shut down and is benefiting from Chinas strong recovery.
After a surprisingly good third quarter, we will likely see a marked decline in growth at the end of the year.
But it is crucial that these funds are deployed for investments that stimulate growth, such as promoting greener technologies or digitalisation.
Otherwise there may even be a pushback for European integration, as the sceptics would then feel vindicated.
The individual euro area countries have been affected very differently by the crisis.
The pandemic has affected euro area countries with varying degrees of severity, depending in part on their economic structures, such as the importance of tourism.
And the governments have different amounts of fiscal space with which to respond to the crisis.
That is exactly why the European fiscal package, which supports Member States according to the severity of the shock, is so important.
Through its pandemic emergency purchase programme (PEPP), the ECB is ensuring that our monetary policy is effective in all countries and is contributing to favourable financing conditions.
After the financial crisis, people underestimated how prolonged the downward effect of such a shock on inflation would be.
The PEPP was envisaged as a temporary response to the COVID-19 pandemic, aimed for one at preventing a slide in inflation.
However, it should not be forgotten that initially this would only concern corporate bonds, while we primarily purchase government bonds.
But how sure are you that the central bank is not depressing real interest rates at least in part?

KBRA Releases The Bank Treasury Newsletter, the Bank Treasury Chart Deck, and Bank Talk: The After-Show

Retrieved on:

星期三, 十月 28, 2020

Banking, Accounting, Professional services, Finance, Money, Monetary policy, Economy, Finance, Inflation, Bank, Economic history of Italy, Quantitative easing, Federal Reserve

Kroll Bond Rating Agency (KBRA) releases this months edition of The Bank Treasury Newsletter, the Bank Treasury Chart Deck, and Bank Talk: The After-Show.

Key Points:

Kroll Bond Rating Agency (KBRA) releases this months edition of The Bank Treasury Newsletter, the Bank Treasury Chart Deck, and Bank Talk: The After-Show.
The bad news was there are few avenues open to bank treasurers to offset current downward pressure on net interest income from growing excess deposits.
The disclosures also revealed how their nonoperational deposits, fueled by the Feds quantitative easing, grew in the same period.
When the Fed eventually raises rates again, mobile-originated retail deposits may turn out to be less sticky than traditional branch-originated deposits.

Does a big bazooka matter? Quantitative easing policies and exchange rates

Retrieved on:

星期三, 十月 21, 2020

Economy, Money, Finance, Inflation, Monetary policy, Financial markets, International macroeconomics, Foreign exchange market, Quantitative easing, Central bank, Exchange rate, Euro

By Luca Dedola, Georgios Georgiadis, Johannes Grb and Arnaud Mehl[1] What does quantitative easing (QE) really mean for the exchange rate?

Key Points:

By Luca Dedola, Georgios Georgiadis, Johannes Grb and Arnaud Mehl[1] What does quantitative easing (QE) really mean for the exchange rate?
The results suggest that QE has large and persistent effects on the USD/EUR exchange rate, mainly through shifts in exchange rate risk and short-term interest rates between the two currencies.
Changes in expectations about the future monetary policy stance, reflecting the signalling channel of monetary policy, also affect how the USD/EUR exchange rate responds to QE.

Introduction

The coronavirus (COVID-19) crisis has breathed new life into the argument that QE has become an essential monetary policy tool.
[2] A large literature has tried to assess the effects of QE, including how it affects the exchange rate.
While the ECB policy does not target the exchange rate itself, the exchange rate channel is an important part of the monetary policy transmission mechanism.
Improving our understanding of the effects of QE on the exchange rate is therefore a central issue for monetary policy.
The exchange rate effects of QE materialise mainly through shifting exchange rate risk (currency risk premia).

Evidence of QE affecting the USD/EUR exchange rate and of its transmission channels

These correlations of course tell us nothing about causality, and cannot be relied on to gauge the effectiveness or transmission channels of QE or to calibrate structural models to this end.
To address these limitations, Dedola, Georgiadis, Grb and Mehl (2020) estimate the effects of QE on the exchange rate.
In line with the monetary theory of the exchange rate as a relative price, they consider the size of the ECBs balance sheet relative to that of the Fed.
Such methods are particularly well suited to measuring the dynamic effects of QE on exchange rates over short and medium-term horizons.
Chart 1 Relative balance sheet, the USD/EUR exchange rate and QE announcements

The findings of the study suggest that QE measures have had large and persistent effects on the exchange rate.
The left-hand panel of Chart 2 shows the impulse response of the nominal US dollar-euro exchange rate to a relative QE shock that expands the ECBs balance sheet relative to that of the Fed by 1 percentage point over the following nine months.
This is estimated from a sample of observations spanning from the global financial crisis in 2008 until the spring of 2019.
The euro immediately depreciates against the US dollar once the QE shock has materialised, bottoming out at around 0.35% below the baseline after nine months.

(percentages and months to “lift-off”)

Also in support of the signalling channel, Dedola et al.
find that a QE shock which expands the ECBs balance sheet relative to that of the Fed shifts markets expectations regarding time to lift-off, i.e.
the first rate rise in the next tightening cycle of monetary policy, farther into the future (see the right-hand panel of Chart 2).
In these models, a balance sheet expansion by the central bank makes its currency more risky for intermediaries with limited risk-bearing capacity.
Since CIP is a key arbitrage relation, QE shocks exacerbate limits to arbitrage in foreign exchange markets.
Chart 3 Breakdown of the exchange rate response to a relative ECB-Fed QE shock

(percentages)

Conclusions and policy implications

But they also materialise through liquidity effects in money markets, signalling effects and, to a much smaller extent, limits to arbitrage in foreign exchange markets.
These developments show how significant the exchange rate is as a transmission channel of monetary policy.
As mentioned earlier, the ECBs monetary policy does not target the exchange rate itself.
At the same time, in the current environment of heightened uncertainty, the ECB will carefully assess the implications of incoming information including developments in the exchange rate for the medium-term inflation outlook.

References

Meeting of 9-10 September 2020

Retrieved on:

星期五, 十月 9, 2020

Economy, Financial services, Banking, Monetary policy, Eurozone, Macroeconomic policy, European Central Bank, Euro, Central bank, Inflation, Fiscal policy, Quantitative easing

Meeting of 9-10 September 2020Account of the monetary policy meeting of the Governing Council of the European Central Bank held in Frankfurt am Main on Wednesday and Thursday, 9-10 September 20201. Review of financial, economic and monetary developments and policy optionsFinancial market developments Ms Schnabel reviewed the financial market developments since the Governing Councils previous monetary policy meeting on 15-16 July 2020.

Key Points:

Meeting of 9-10 September 2020

Account of the monetary policy meeting of the Governing Council of the European Central Bank held in Frankfurt am Main on Wednesday and Thursday, 9-10 September 2020

1. Review of financial, economic and monetary developments and policy options

Financial market developments

Ms Schnabel reviewed the financial market developments since the Governing Councils previous monetary policy meeting on 15-16 July 2020.
The functioning of euro area financial markets had, by and large, been restored.
Stress symptoms had largely dissipated and liquidity had returned to the market.
Financial conditions had also improved broadly in the euro area.
Many market participants believed that this divergence if it were to persist would lower the risk of widespread lockdowns, resulting in less of a downside risk to economic activity.
It was notable that there was a growing dispersion in the extent of easing of financial conditions across advanced economies, with the euro area lagging behind.
The dispersion could largely be explained by two factors, namely developments in global stock markets and shifts in exchange rates.
Even after the developments of the past few days, the Standard & Poors 500 stock market index was still up by around 50% from its mid-March 2020 trough and remained above pre-crisis levels.
Looking ahead, market positioning remained tilted towards further euro appreciation, with net speculative US dollar positions against advanced economy currencies, including the euro, remaining sizeable.

The global environment and economic and monetary developments in the euro area

Mr Lane reviewed the global environment and recent economic and monetary developments in the euro area.
While, by and large, risks to global activity and trade remained on the downside, there were also some upside risks.
Financial conditions had continued to ease in advanced and emerging economies since the Governing Councils July monetary policy meeting.
One important factor behind the rally in global risk assets was related to positive global macroeconomic surprises as reflected in the Citigroup Economic Surprise Index for advanced economies, which stood at an all-time high.
The euro had continued to appreciate against the US dollar (+3.8%) and in nominal effective terms (+1.7%) against a trade-weighted basket of 42 currencies.
The appreciation of the euro resulted, in part, from the broad weakness of the US dollar.
Turning to the euro area economy, real GDP had contracted by 11.8%, quarter on quarter, in the second quarter of 2020.
Turning to euro area price developments, euro area annual HICP inflation had decreased from 0.4% in July to 0.2% in August (according to Eurostats flash estimate).
In this environment, the narrow monetary aggregate M1, encompassing the most liquid forms of money, continued to be the main contributor to broad money growth.
The annual growth rate of loans to households, which had stood at 3.0% in July, had remained stable since April 2020.
Turning to fiscal policies, the euro area fiscal stance was expected to be strongly expansionary in 2020, with most of the additional spending comprising transfers to firms and households.

Monetary policy considerations and policy options

In its public communication the Governing Council needed to:
- stress that the incoming information continued to signal a strong resumption of euro area economic activity, broadly in line with previous expectations, although the recovery remained incomplete, uneven and subject to considerable uncertainty;
- emphasise that inflation pressures were expected to remain subdued on account of weak demand, lower wage pressures and the appreciation of the euro exchange rate;
- note that the unchanged projection for headline inflation in 2022 masked an upward revision to core inflation (reflecting the positive impact of monetary and fiscal policies, albeit muted by the appreciation of the euro) that was offset by the revised path of energy price inflation;
- reiterate that ample monetary policy stimulus would remain necessary to support the economic recovery and to offset the negative impact of the pandemic shock on the projected path of inflation;
- highlight that, in the current environment of elevated uncertainty, significant economic slack and increased exchange rate volatility, the Governing Council would monitor incoming information very carefully and continue to stand ready to adjust all of its instruments, as appropriate, to ensure that inflation moved towards its aim in a sustained manner.
- The speed of the rebound was broadly in line with the expected pace set out in the June 2020 projections.
- The September ECB staff macroeconomic projections signalled that output would rebound in the third and fourth quarters by 8.4% and 3.1% respectively.
- Only towards the end of the projection horizon was output projected to return to its pre-pandemic level.
- Near-term price pressures were expected to remain subdued, in part owing to the recent appreciation of the euro exchange rate.
- Since the July monetary policy meeting, market-based measures of longer-term inflation expectations had continued to recover from the historical lows reached in mid-March, but remained at very depressed levels.
- The unchanged projection for inflation in 2022 masked an upward revision to core inflation (reflecting the positive impact of monetary and fiscal policy measures).
- Valuations of risky assets had continued to recover across the globe, driven by a combination of positive data surprises and strong policy actions.
- The ECBs monetary policy measures were providing crucial support to the recovery of the euro area economy.
- Over the coming months additional information would help to inform the direction of policy.
- Against this background, at the present meeting Mr Lane proposed to leave the overall monetary policy stance unchanged and to reconfirm the full set of existing monetary policy measures.

2. Governing Council’s discussion and monetary policy decisions

Economic and monetary analyses

With regard to the economic analysis, members generally agreed with the assessment of the current economic outlook for the euro area and the risks to activity provided by Mr Lane in his introduction.
Relative changes in the monetary policy in the United States and the euro area were also seen as an important driver.
Recently, momentum had slowed in the services sector compared with the manufacturing sector, which was also visible in the survey results for August.
High economic uncertainty was seen to weigh on consumption, with the level of precautionary savings in particular being dependent on developments in household confidence.
At the same time, debt sustainability considerations meant that it was important for fiscal expansion to be temporary and well targeted, in particular aimed at improving productivity and sustainable economic growth.
This assessment largely reflected the still uncertain economic and financial implications of the pandemic.
Well-designed structural policies could contribute to a faster, stronger and more uniform recovery from the crisis, thereby supporting the effectiveness of monetary policy in the euro area.
Over the medium term a recovery in demand, supported by accommodative monetary and fiscal policies, would put upward pressure on inflation.
Moreover, the economic impact would also depend on the underlying causes of the exchange rate movement, which were difficult to reliably disentangle.
In discussing recent developments in inflation expectations, members noted that longer-term inflation expectations, as reported in the ECBs Survey of Professional Forecasters, had fallen to 1.6%, the lowest level since the start of Economic and Monetary Union.
With regard to the monetary analysis, members broadly agreed with the assessment provided by Mr Lane in his introduction.
Bank lending to the private sector continued to be supported by the measures taken by the supervisory, fiscal and monetary policy authorities, including the latest TLTRO III operation.
While the rebound in economic activity had resulted in some recovery in firms revenues and a shift in loan demand towards longer-term loans, the uncertainty over the economic outlook was likely to cast a shadow over future loan demand.
The uncertainty surrounding the economic outlook was seen to pose a potential challenge to the transmission of monetary policy through the banking sector, which had to be monitored carefully.
Possible financial vulnerabilities in the corporate sector could, in turn, have adverse repercussions for bank balance sheets and thereby had the potential to impair monetary policy transmission and give rise to financial stability risks.

Monetary policy stance and policy considerations

With regard to financial conditions and the monetary policy stance, members broadly shared the assessments provided by Ms Schnabel and Mr Lane in their introductions.
While financial market conditions had continued to normalise since the July monetary policy meeting, with valuations of risky assets across the globe continuing to recover, the easing trend in financial conditions had been partly counteracted by the appreciation of the euro.
In this context, the risk of a further euro appreciation was seen as partly linked to market perceptions of the scope for further changes in monetary policy in different jurisdictions.
Against that background, members agreed with the proposal by Mr Lane to leave the overall monetary policy stance unchanged and to reconfirm the current configuration of existing monetary policy instruments.
In the prevailing environment of high uncertainty, keeping a steady hand with respect to monetary policy was seen as most appropriate.
Members widely agreed that the ECBs monetary policy measures were providing crucial support for the recovery of the euro area economy and underlying inflation pressures.
The configuration of monetary policy was supporting the flow of credit to households and businesses and contributing to accommodative funding conditions in all parts of the economy.
In the light of normalising market conditions and subsiding risks of fragmentation, it was highlighted that the role of the PEPP in easing the monetary policy stance had taken centre stage.
While the PEPP was currently seen as the primary instrument for providing additional monetary policy accommodation, it was noted that further cuts in policy rates and changes to the conditions of the TLTROs were also part of the toolkit for providing additional monetary policy accommodation, if necessary.
In addition, it needed to be emphasised that the monetary policy stance would remain accommodative and that the Governing Council would not tolerate an unwarranted tightening in financial conditions that would put the ECBs price stability mandate at risk.

Monetary policy decisions and communication

Taking into account the foregoing discussion, upon a proposal by the President, the Governing Council 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 would remain unchanged at 0.00%, 0.25% and −0.50% respectively. The Governing Council expected the key ECB interest rates to remain at their present or lower levels until it had seen the inflation outlook robustly converge to a level sufficiently close to, but below, 2% within its projection horizon, and such convergence had been consistently reflected in underlying inflation dynamics.
2. The Governing Council would continue its purchases under the pandemic emergency purchase programme (PEPP) with a total envelope of €1,350 billion. These purchases would contribute to easing the overall monetary policy stance, thereby helping to offset the downward impact of the pandemic on the projected path of inflation. The purchases would continue to be conducted in a flexible manner over time, across asset classes and among jurisdictions. This allowed the Governing Council to effectively stave off risks to the smooth transmission of monetary policy. The Governing Council would conduct net asset purchases under the PEPP until at least the end of June 2021 and, in any case, until it judged that the coronavirus crisis phase was over. The Governing Council would reinvest the principal payments from maturing securities purchased under the PEPP until at least the end of 2022. In any case, the future roll-off of the PEPP portfolio would be managed to avoid interference with the appropriate monetary policy stance.
3. Net purchases under the asset purchase programme (APP) would continue at a monthly pace of €20 billion, together with the purchases under the additional €120 billion temporary envelope until the end of the year. The Governing Council continued to expect monthly net asset purchases under the APP to run for as long as necessary to reinforce the accommodative impact of its policy rates, and to end shortly before it started raising the key ECB interest rates. The Governing Council intended to continue reinvesting, in full, the principal payments from maturing securities purchased under the APP for an extended period of time past the date when it started 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.
4. The Governing Council would also continue to provide ample liquidity through its refinancing operations. In particular, the latest operation in the third series of targeted longer-term refinancing operations (TLTRO III) had registered a very high take-up of funds, supporting bank lending to firms and households.
The Governing Council continued to stand ready to adjust all of its instruments, as appropriate, to ensure that inflation moved towards its aim in a sustained manner, in line with its commitment to symmetry. The members of the Governing Council subsequently finalised the introductory statement, which the President and the Vice-President would, as usual, deliver at the press conference following the end of the current Governing Council meeting.

Meeting of 9-10 September 2020

Retrieved on:

星期五, 十月 9, 2020

Economy, Financial services, Banking, Monetary policy, Eurozone, Macroeconomic policy, European Central Bank, Euro, Central bank, Inflation, Fiscal policy, Quantitative easing

Meeting of 9-10 September 2020Account of the monetary policy meeting of the Governing Council of the European Central Bank held in Frankfurt am Main on Wednesday and Thursday, 9-10 September 20201. Review of financial, economic and monetary developments and policy optionsFinancial market developments Ms Schnabel reviewed the financial market developments since the Governing Councils previous monetary policy meeting on 15-16 July 2020.

Key Points:

Meeting of 9-10 September 2020

Account of the monetary policy meeting of the Governing Council of the European Central Bank held in Frankfurt am Main on Wednesday and Thursday, 9-10 September 2020

1. Review of financial, economic and monetary developments and policy options

Financial market developments

Ms Schnabel reviewed the financial market developments since the Governing Councils previous monetary policy meeting on 15-16 July 2020.
The functioning of euro area financial markets had, by and large, been restored.
Stress symptoms had largely dissipated and liquidity had returned to the market.
Financial conditions had also improved broadly in the euro area.
Many market participants believed that this divergence if it were to persist would lower the risk of widespread lockdowns, resulting in less of a downside risk to economic activity.
It was notable that there was a growing dispersion in the extent of easing of financial conditions across advanced economies, with the euro area lagging behind.
The dispersion could largely be explained by two factors, namely developments in global stock markets and shifts in exchange rates.
Even after the developments of the past few days, the Standard & Poors 500 stock market index was still up by around 50% from its mid-March 2020 trough and remained above pre-crisis levels.
Looking ahead, market positioning remained tilted towards further euro appreciation, with net speculative US dollar positions against advanced economy currencies, including the euro, remaining sizeable.

The global environment and economic and monetary developments in the euro area

Mr Lane reviewed the global environment and recent economic and monetary developments in the euro area.
While, by and large, risks to global activity and trade remained on the downside, there were also some upside risks.
Financial conditions had continued to ease in advanced and emerging economies since the Governing Councils July monetary policy meeting.
One important factor behind the rally in global risk assets was related to positive global macroeconomic surprises as reflected in the Citigroup Economic Surprise Index for advanced economies, which stood at an all-time high.
The euro had continued to appreciate against the US dollar (+3.8%) and in nominal effective terms (+1.7%) against a trade-weighted basket of 42 currencies.
The appreciation of the euro resulted, in part, from the broad weakness of the US dollar.
Turning to the euro area economy, real GDP had contracted by 11.8%, quarter on quarter, in the second quarter of 2020.
Turning to euro area price developments, euro area annual HICP inflation had decreased from 0.4% in July to 0.2% in August (according to Eurostats flash estimate).
In this environment, the narrow monetary aggregate M1, encompassing the most liquid forms of money, continued to be the main contributor to broad money growth.
The annual growth rate of loans to households, which had stood at 3.0% in July, had remained stable since April 2020.
Turning to fiscal policies, the euro area fiscal stance was expected to be strongly expansionary in 2020, with most of the additional spending comprising transfers to firms and households.

Monetary policy considerations and policy options

In its public communication the Governing Council needed to:
- stress that the incoming information continued to signal a strong resumption of euro area economic activity, broadly in line with previous expectations, although the recovery remained incomplete, uneven and subject to considerable uncertainty;
- emphasise that inflation pressures were expected to remain subdued on account of weak demand, lower wage pressures and the appreciation of the euro exchange rate;
- note that the unchanged projection for headline inflation in 2022 masked an upward revision to core inflation (reflecting the positive impact of monetary and fiscal policies, albeit muted by the appreciation of the euro) that was offset by the revised path of energy price inflation;
- reiterate that ample monetary policy stimulus would remain necessary to support the economic recovery and to offset the negative impact of the pandemic shock on the projected path of inflation;
- highlight that, in the current environment of elevated uncertainty, significant economic slack and increased exchange rate volatility, the Governing Council would monitor incoming information very carefully and continue to stand ready to adjust all of its instruments, as appropriate, to ensure that inflation moved towards its aim in a sustained manner.
- The speed of the rebound was broadly in line with the expected pace set out in the June 2020 projections.
- The September ECB staff macroeconomic projections signalled that output would rebound in the third and fourth quarters by 8.4% and 3.1% respectively.
- Only towards the end of the projection horizon was output projected to return to its pre-pandemic level.
- Near-term price pressures were expected to remain subdued, in part owing to the recent appreciation of the euro exchange rate.
- Since the July monetary policy meeting, market-based measures of longer-term inflation expectations had continued to recover from the historical lows reached in mid-March, but remained at very depressed levels.
- The unchanged projection for inflation in 2022 masked an upward revision to core inflation (reflecting the positive impact of monetary and fiscal policy measures).
- Valuations of risky assets had continued to recover across the globe, driven by a combination of positive data surprises and strong policy actions.
- The ECBs monetary policy measures were providing crucial support to the recovery of the euro area economy.
- Over the coming months additional information would help to inform the direction of policy.
- Against this background, at the present meeting Mr Lane proposed to leave the overall monetary policy stance unchanged and to reconfirm the full set of existing monetary policy measures.

2. Governing Council’s discussion and monetary policy decisions

Economic and monetary analyses

With regard to the economic analysis, members generally agreed with the assessment of the current economic outlook for the euro area and the risks to activity provided by Mr Lane in his introduction.
Relative changes in the monetary policy in the United States and the euro area were also seen as an important driver.
Recently, momentum had slowed in the services sector compared with the manufacturing sector, which was also visible in the survey results for August.
High economic uncertainty was seen to weigh on consumption, with the level of precautionary savings in particular being dependent on developments in household confidence.
At the same time, debt sustainability considerations meant that it was important for fiscal expansion to be temporary and well targeted, in particular aimed at improving productivity and sustainable economic growth.
This assessment largely reflected the still uncertain economic and financial implications of the pandemic.
Well-designed structural policies could contribute to a faster, stronger and more uniform recovery from the crisis, thereby supporting the effectiveness of monetary policy in the euro area.
Over the medium term a recovery in demand, supported by accommodative monetary and fiscal policies, would put upward pressure on inflation.
Moreover, the economic impact would also depend on the underlying causes of the exchange rate movement, which were difficult to reliably disentangle.
In discussing recent developments in inflation expectations, members noted that longer-term inflation expectations, as reported in the ECBs Survey of Professional Forecasters, had fallen to 1.6%, the lowest level since the start of Economic and Monetary Union.
With regard to the monetary analysis, members broadly agreed with the assessment provided by Mr Lane in his introduction.
Bank lending to the private sector continued to be supported by the measures taken by the supervisory, fiscal and monetary policy authorities, including the latest TLTRO III operation.
While the rebound in economic activity had resulted in some recovery in firms revenues and a shift in loan demand towards longer-term loans, the uncertainty over the economic outlook was likely to cast a shadow over future loan demand.
The uncertainty surrounding the economic outlook was seen to pose a potential challenge to the transmission of monetary policy through the banking sector, which had to be monitored carefully.
Possible financial vulnerabilities in the corporate sector could, in turn, have adverse repercussions for bank balance sheets and thereby had the potential to impair monetary policy transmission and give rise to financial stability risks.

Monetary policy stance and policy considerations

With regard to financial conditions and the monetary policy stance, members broadly shared the assessments provided by Ms Schnabel and Mr Lane in their introductions.
While financial market conditions had continued to normalise since the July monetary policy meeting, with valuations of risky assets across the globe continuing to recover, the easing trend in financial conditions had been partly counteracted by the appreciation of the euro.
In this context, the risk of a further euro appreciation was seen as partly linked to market perceptions of the scope for further changes in monetary policy in different jurisdictions.
Against that background, members agreed with the proposal by Mr Lane to leave the overall monetary policy stance unchanged and to reconfirm the current configuration of existing monetary policy instruments.
In the prevailing environment of high uncertainty, keeping a steady hand with respect to monetary policy was seen as most appropriate.
Members widely agreed that the ECBs monetary policy measures were providing crucial support for the recovery of the euro area economy and underlying inflation pressures.
The configuration of monetary policy was supporting the flow of credit to households and businesses and contributing to accommodative funding conditions in all parts of the economy.
In the light of normalising market conditions and subsiding risks of fragmentation, it was highlighted that the role of the PEPP in easing the monetary policy stance had taken centre stage.
While the PEPP was currently seen as the primary instrument for providing additional monetary policy accommodation, it was noted that further cuts in policy rates and changes to the conditions of the TLTROs were also part of the toolkit for providing additional monetary policy accommodation, if necessary.
In addition, it needed to be emphasised that the monetary policy stance would remain accommodative and that the Governing Council would not tolerate an unwarranted tightening in financial conditions that would put the ECBs price stability mandate at risk.

Monetary policy decisions and communication

Taking into account the foregoing discussion, upon a proposal by the President, the Governing Council 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 would remain unchanged at 0.00%, 0.25% and −0.50% respectively. The Governing Council expected the key ECB interest rates to remain at their present or lower levels until it had seen the inflation outlook robustly converge to a level sufficiently close to, but below, 2% within its projection horizon, and such convergence had been consistently reflected in underlying inflation dynamics.
2. The Governing Council would continue its purchases under the pandemic emergency purchase programme (PEPP) with a total envelope of €1,350 billion. These purchases would contribute to easing the overall monetary policy stance, thereby helping to offset the downward impact of the pandemic on the projected path of inflation. The purchases would continue to be conducted in a flexible manner over time, across asset classes and among jurisdictions. This allowed the Governing Council to effectively stave off risks to the smooth transmission of monetary policy. The Governing Council would conduct net asset purchases under the PEPP until at least the end of June 2021 and, in any case, until it judged that the coronavirus crisis phase was over. The Governing Council would reinvest the principal payments from maturing securities purchased under the PEPP until at least the end of 2022. In any case, the future roll-off of the PEPP portfolio would be managed to avoid interference with the appropriate monetary policy stance.
3. Net purchases under the asset purchase programme (APP) would continue at a monthly pace of €20 billion, together with the purchases under the additional €120 billion temporary envelope until the end of the year. The Governing Council continued to expect monthly net asset purchases under the APP to run for as long as necessary to reinforce the accommodative impact of its policy rates, and to end shortly before it started raising the key ECB interest rates. The Governing Council intended to continue reinvesting, in full, the principal payments from maturing securities purchased under the APP for an extended period of time past the date when it started 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.
4. The Governing Council would also continue to provide ample liquidity through its refinancing operations. In particular, the latest operation in the third series of targeted longer-term refinancing operations (TLTRO III) had registered a very high take-up of funds, supporting bank lending to firms and households.
The Governing Council continued to stand ready to adjust all of its instruments, as appropriate, to ensure that inflation moved towards its aim in a sustained manner, in line with its commitment to symmetry. The members of the Governing Council subsequently finalised the introductory statement, which the President and the Vice-President would, as usual, deliver at the press conference following the end of the current Governing Council meeting.

Philip R. Lane: The ECB’s monetary policy in the pandemic: meeting the challenge

Retrieved on:

星期三, 十月 7, 2020

Economy, Macroeconomics, Money, Inflation, Macroeconomic policy, Quantitative easing, Monetary policy, Monetary inflation, Euro, Inflation targeting, European Central Bank

SPEECHThe ECB’s monetary policy in the pandemic: meeting the challengeSpeech by Philip R. Lane, Member of the Executive Board of the ECB, at the 62nd NABE Annual Meeting “Global Reset? Economics, Business, and Policy in the Pandemic” 6 October 2020 I will provide a brief assessment of the macroeconomic outlook, discuss the ECB’s monetary policy response to the pandemic crisis and explain our current monetary policy challenge.[1]The macroeconomic outlookCompared with the trough, this initial recovery phase is visible across a wide range of economic indicators.

Key Points:

SPEECH

The ECB’s monetary policy in the pandemic: meeting the challenge

Speech by Philip R. Lane, Member of the Executive Board of the ECB, at the 62nd NABE Annual Meeting “Global Reset? Economics, Business, and Policy in the Pandemic”

The macroeconomic outlook

Compared with the trough, this initial recovery phase is visible across a wide range of economic indicators.
[2] That said, the euro area economy is still operating far below its pre-pandemic level.
[3] Meanwhile, the resurgence in infection rates (and the associated public health measures) is posing renewed challenges, especially for those sectors most affected by social distancing.
[4] In this environment, many households are uncertain about future employment and wage dynamics, motivating them to save more for precautionary purposes.
Chart 1 shows that services sector activity has been disproportionately hit (also when compared with the global financial crisis).

This assessment underpins the baseline scenario of the September ECB staff macroeconomic projections.
Despite the recovery in the second half of the year, output at the end of 2020 is projected to remain about 5.2 percent below the level of output at the end of 2019.
This is illustrated by the alternative projection scenarios (the baseline projection is flanked by mild and severe scenarios), as shown in Chart 2.
In view of the uncertain economic and financial outcomes of the pandemic, the balance of risks is tilted to the downside.

Euro area HICP inflation has been declining for several months: after turning negative to minus 0.2 percent in August, the flash estimate for September signals a further decline to minus 0.3 percent in September.
We expect headline inflation to remain negative for the remainder of the year, before returning to positive territory in early 2021.
In parallel to the general economic outlook, there is considerable uncertainty surrounding this baseline projection, as indicated by the range of inflation outcomes that are spanned by the mild and severe scenarios for the inflation outlook in Chart 3.
I will turn to the implications of the inflation outlook for monetary policy later in this speech.
Chart 3 Realised and projected headline inflation (annual percentage changes)

The monetary policy response

An accommodative monetary policy configuration was already in place before the pandemic: in September 2019, the main policy rate (the deposit facility rate) was lowered to minus 0.5 percent and there was a resumption of net asset purchases at a rate of 20 billion per month under our baseline asset purchase programme (APP), with these measures reinforced by forward guidance that ties future monetary policy to the inflation outlook.
In addition, credit supply was supported by the third series of targeted longer-term refinancing operations (the TLTRO III programme).
In the initial response to the pandemic crisis, we adopted a comprehensive package of complementary measures, which are illustrated in Chart 4.
The additional quantitative easing provided by the PEPP programme also eases the overall monetary stance, acting to reduce economic slack and boost inflation dynamics over the medium term.

With the launch of the PEPP, our range of monetary policy measures currently consists of four main instruments: (a) the setting of our policy rates (with the deposit facility rate as the primary current margin); (b) the baseline asset purchase programme (APP); (c) the pandemic-specific temporary asset purchase programme (PEPP); and (d) the TLTRO III programme.
Our forward guidance about the future setting of our policy measures plays a central role in determining our overall monetary stance.
In relation to our policy rates, our current forward guidance links future rate-setting to the inflation outlook; in turn, net purchases and reinvestment under the APP are linked to the rate path.
In line with our forward guidance, market-based expectations of future policy rates and the future path of the APP have adjusted in response to changes to the inflation outlook.
Through these endogenous market responses, our forward guidance acts as an automatic stabiliser through the adjustment of monetary policy expectations and hence the entire spectrum of monetary conditions to changes in the inflation outlook.

The combination of our pre-pandemic and pandemic-specific monetary policy measures has successfully contributed to the stabilisation of markets and has thereby helped to ensure the smooth transmission of our monetary policy.
[7] As shown in Chart 6, the PEPP has also helped contain sovereign bond yields: today, the euro area GDP-weighted yield curve is back to its pre-crisis levels.
This is central to the transmission of our monetary policy, since sovereign bond yields are the basis for funding costs for households, corporates and banks (in addition to governments).

Credit supply has been supported by our TLTRO III operations.
The TLTROs were in high demand in June and September 2020, with a combined take-up of nearly 1.5 trillion.
Our estimates show that TLTRO III liquidity can be expected to boost loan volumes considerably, to the tune of 3 percentage points cumulatively by 2022.
In addition, the euro area bank lending survey indicates that TLTRO funding has been effective in easing the terms and conditions that banks apply in their lending.

It is apparent that, despite an increase in credit risk, the supportive conditions of the ECB funding have contributed to keeping the lending rate around the historically low levels it had reached before the pandemic crisis.
Chart 8 Lending rate to non-financial corporations and its components (percentages per annum)

Meeting the monetary policy challenge

Philip R. Lane: The ECB’s monetary policy in the pandemic: meeting the challenge

Retrieved on:

星期三, 十月 7, 2020

Economy, Macroeconomics, Money, Inflation, Macroeconomic policy, Quantitative easing, Monetary policy, Monetary inflation, Euro, Inflation targeting, European Central Bank

SPEECHThe ECB’s monetary policy in the pandemic: meeting the challengeSpeech by Philip R. Lane, Member of the Executive Board of the ECB, at the 62nd NABE Annual Meeting “Global Reset? Economics, Business, and Policy in the Pandemic” 6 October 2020 I will provide a brief assessment of the macroeconomic outlook, discuss the ECB’s monetary policy response to the pandemic crisis and explain our current monetary policy challenge.[1]The macroeconomic outlookCompared with the trough, this initial recovery phase is visible across a wide range of economic indicators.

Key Points:

SPEECH

The ECB’s monetary policy in the pandemic: meeting the challenge

Speech by Philip R. Lane, Member of the Executive Board of the ECB, at the 62nd NABE Annual Meeting “Global Reset? Economics, Business, and Policy in the Pandemic”

The macroeconomic outlook

Compared with the trough, this initial recovery phase is visible across a wide range of economic indicators.
[2] That said, the euro area economy is still operating far below its pre-pandemic level.
[3] Meanwhile, the resurgence in infection rates (and the associated public health measures) is posing renewed challenges, especially for those sectors most affected by social distancing.
[4] In this environment, many households are uncertain about future employment and wage dynamics, motivating them to save more for precautionary purposes.
Chart 1 shows that services sector activity has been disproportionately hit (also when compared with the global financial crisis).

This assessment underpins the baseline scenario of the September ECB staff macroeconomic projections.
Despite the recovery in the second half of the year, output at the end of 2020 is projected to remain about 5.2 percent below the level of output at the end of 2019.
This is illustrated by the alternative projection scenarios (the baseline projection is flanked by mild and severe scenarios), as shown in Chart 2.
In view of the uncertain economic and financial outcomes of the pandemic, the balance of risks is tilted to the downside.

Euro area HICP inflation has been declining for several months: after turning negative to minus 0.2 percent in August, the flash estimate for September signals a further decline to minus 0.3 percent in September.
We expect headline inflation to remain negative for the remainder of the year, before returning to positive territory in early 2021.
In parallel to the general economic outlook, there is considerable uncertainty surrounding this baseline projection, as indicated by the range of inflation outcomes that are spanned by the mild and severe scenarios for the inflation outlook in Chart 3.
I will turn to the implications of the inflation outlook for monetary policy later in this speech.
Chart 3 Realised and projected headline inflation (annual percentage changes)

The monetary policy response

An accommodative monetary policy configuration was already in place before the pandemic: in September 2019, the main policy rate (the deposit facility rate) was lowered to minus 0.5 percent and there was a resumption of net asset purchases at a rate of 20 billion per month under our baseline asset purchase programme (APP), with these measures reinforced by forward guidance that ties future monetary policy to the inflation outlook.
In addition, credit supply was supported by the third series of targeted longer-term refinancing operations (the TLTRO III programme).
In the initial response to the pandemic crisis, we adopted a comprehensive package of complementary measures, which are illustrated in Chart 4.
The additional quantitative easing provided by the PEPP programme also eases the overall monetary stance, acting to reduce economic slack and boost inflation dynamics over the medium term.

With the launch of the PEPP, our range of monetary policy measures currently consists of four main instruments: (a) the setting of our policy rates (with the deposit facility rate as the primary current margin); (b) the baseline asset purchase programme (APP); (c) the pandemic-specific temporary asset purchase programme (PEPP); and (d) the TLTRO III programme.
Our forward guidance about the future setting of our policy measures plays a central role in determining our overall monetary stance.
In relation to our policy rates, our current forward guidance links future rate-setting to the inflation outlook; in turn, net purchases and reinvestment under the APP are linked to the rate path.
In line with our forward guidance, market-based expectations of future policy rates and the future path of the APP have adjusted in response to changes to the inflation outlook.
Through these endogenous market responses, our forward guidance acts as an automatic stabiliser through the adjustment of monetary policy expectations and hence the entire spectrum of monetary conditions to changes in the inflation outlook.

The combination of our pre-pandemic and pandemic-specific monetary policy measures has successfully contributed to the stabilisation of markets and has thereby helped to ensure the smooth transmission of our monetary policy.
[7] As shown in Chart 6, the PEPP has also helped contain sovereign bond yields: today, the euro area GDP-weighted yield curve is back to its pre-crisis levels.
This is central to the transmission of our monetary policy, since sovereign bond yields are the basis for funding costs for households, corporates and banks (in addition to governments).

Credit supply has been supported by our TLTRO III operations.
The TLTROs were in high demand in June and September 2020, with a combined take-up of nearly 1.5 trillion.
Our estimates show that TLTRO III liquidity can be expected to boost loan volumes considerably, to the tune of 3 percentage points cumulatively by 2022.
In addition, the euro area bank lending survey indicates that TLTRO funding has been effective in easing the terms and conditions that banks apply in their lending.

It is apparent that, despite an increase in credit risk, the supportive conditions of the ECB funding have contributed to keeping the lending rate around the historically low levels it had reached before the pandemic crisis.
Chart 8 Lending rate to non-financial corporations and its components (percentages per annum)