Governor’s statement following the ECB’s monetary policy meeting

Amid the ongoing coronavirus pandemic, and the measures taken by governments to curb its spread, the euro area economy has taken a sharp downturn. Given the fall in GDP even in the first quarter, and the further deterioration expected, the euro area will end the year with a large decline in GDP. In this situation the central bank governors judged that there is a need for additional monetary policy stimulus, and highlighted the urgent need for more-ambitious, better-coordinated fiscal policy measures at the European level.

The macroeconomic situation in the euro area has been hit hard by the coronavirus pandemic and the measures taken to curb it. These measures have contained the spread of the virus, and a number of euro area countries have already begun relaxing restrictions and reigniting parts of the economy. There nevertheless remains great uncertainty on the financial markets surrounding the consequences of the pandemic. According to various scenarios, the euro area will see a fall in GDP of 5% to 12% this year, depending on the assumptions about the length and severity of the lockdown measures.

Central banks have responded to the downturn, as have governments and international institutions, with extensive measures to support businesses, households and governments. At the ECB we took several measures in mid-March to provide liquidity for the banking system, and to help maintain favourable financing conditions for the whole economy. These measure have had a key impact over the last few weeks in alleviating the crisis.

At yesterday’s meeting of the Governing Council, where I represented Slovenia as Governor of Banka Slovenije, two additional measures were taken to make monetary policy even more accommodative, namely:

1. The introduction of a new instrument, the pandemic emergency longer-term refinancing operations (PELTROs). This liquidity-providing instrument will not be contingent on extra requirements with regard to bank lending, and will therefore be less complex for banks than the TLTRO III, and less costly than main refinancing operations (MROs). Its purpose is to provide liquidity support to preserve the smooth functioning of money markets and lending activity.

2. Additional easing of the conditions on existing targeted longer-term refinancing operations (TLTRO III). This will allow banks to obtain liquidity at a lower interest rate, and also to apply a longer assessment period, which will give banks greater access to additional liquidity and will enable them to transfer it to the real sector.

We also reiterated our commitment to adjusting all our instruments as necessary, including the Pandemic Emergency Purchase Programme (PEPP) introduced in March of this year.

The central bank governors again highlighted the urgent need for more-ambitious, better-coordinated fiscal policy measures at the European level, which should merely be temporary and should focus on dealing with the consequences of the pandemic.