Monetary policy

Non-standard measures

The Eurosystem primarily introduced non-standard measures to reduce risk and to provide support to individual market segments. They were subsequently expanded with the aim to additionally strengthen the effects of these instruments on the financing conditions for the real economy, and in connection with other measures, to strengthen the expansionary monetary policy.

Asset Purchase Programmes (APP)

The Eurosystem introduced its first individual asset purchase programmes between 2009 and 2012, but those were later terminated. Since autumn 2014 it has been executing outright purchases of debt securities through the Asset Purchase Programme (APP), which were later on, in the period from 1 January to 31 October, limited to reinvestment of principal payments from maturing securities. The Eurosystem continued with net purchases from 1 November 2019 until 30 June 2022.

The APP consists of four purchasing programmes under which the Eurosystem purchases the following asset classes:

  • public sector debt securities, the purchase of which has been carried out since March 2015 on the secondary market under the PSPP (Public Sector Purchase Programme), 
  • debt securities of non-bank corporates, the purchase of which has been carried out since June 2016 under the CSPP (Corporate Sector Purchase Programme), 
  • covered bonds, the purchase of which has been carried out since October 2014 under the CBPP3 (Covered Bond Purchase Programme), and
  • asset-backed securities, the purchase of which has been carried out since November 2014 under the ABSPP (Asset-Backed Securities Purchase Programme). 

The legal basis for executing the individual programmes are ECB Decisions. For more information on the individual programmes, see the ECB website.

Reinvestments of the principal payments from maturing securities purchased under the APP continued, in full, until the end of February 2023. Subsequently, the portfolio declined at a measured and predictable pace, as the Eurosystem did not reinvest all of the principal payments from maturing securities. The decline amounted to EUR 15 billion per month on average until the end of the second quarter of 2023. Thereafter, the reinvestments under the APP were discontinued as of July 2023.

The Eurosystem lends the securities from the purchase programme to market participants. For more, see the section on securities lending.

Pandemic emergency puchase programme (PEPP)

In order to counter the serious risk to the monetary policy transmission mechanism and the outlook for the euro area posed by the coronavirus outbreak, the ECB initiated the pandemic emergency purchase programme (PEPP) in March 2020. Purchases include all asset classes from the existing APP programme, in addition to certain short-term debt securities and securities issued by the Greek government.

An overall envelope of purchases amounted to a maximum of EUR 1,850 billion. The Governing Council terminated net asset purchases under the PEPP at the end of March 2022. The maturing principal payments from securities purchased under the PEPP will be reinvested until at least the end of 2024, with holdings reducing by EUR 7.5 billion per month on average over the second half of 2024.

For more, see the Implementation of the PEPP.

The Transmission Protection Instrument (TPI)

In July 2022, the Governing Council approved TPI – the new instrument for the support of the effective transmission of monetary policy. TPI aims to maintain the uniform and homogenous transmission of the monetary policy stance across the entire euro area, a prerequisite for meeting the inflation target. The Governing Council will activate the instrument in the event of unjustified and unregulated market dynamics, which would seriously threaten the transmission of monetary policy across the euro area. Should a situation arise where the new instrument would actually be deployed, the purchases under the instrument would focus initially on public-sector securities with a residual maturity of one to ten years. Purchases will only be allowed in countries that:

  • are not subject to an excessive deficit procedure, or are taking effective action in response to an EU Council recommendation to address an excessive deficit,
  • are not subject to an excessive imbalance procedure, or are taking effective action in response to an EU Council recommendation for corrective action,
  • show a high likelihood that the future trajectory of public debt is sustainable,
  • comply with the commitments submitted in the recovery and resilience plans.

The scale of the purchases is not restricted ex ante, and will depend of the severity of the risks facing monetary policy transmission. The purchases will be undertaken in a way that does not affect the monetary policy stance.

For more, see the ECB website.

Outright Monetary Transactions (OMT)

In August 2012, the Governing Council of the ECB annonuced the Eurosystem's outright transactions in secondary sovereign bond markets that aim at safeguarding an appropriate monetary policy transmission and preserving the singleness of monetary policy. OMT was designed to be conditional upon a European Financial Stability Facility (EFSF) / European Stability Mechanism (ESM) macroeconomic adjustment or precautionary programme in a country. Until now, the programme has never been used.

For more, see the ECB website.

 

The other non-standard measures introduced since the start of the financial market turmoil in 2007 are as follows: 

  1. Open market operations with fixed-rate full allotment tenders: All open market operations have been executed via fixed-rate full allotment tenders since October 2008.  
  2. Longer-term open market operations with new maturities: In addition to the regular 3-month LTROs, banks were also offered several extraordinary LTROs via tenders. From 2014 onwards, the Eurosystem have executed three series of targeted longer-term refinancing operations (TLTROs) with a maturity of up to four years, where the maximum borrowing and interest rate were set separately for each bank and depended on its lending to the non-financial sector. In 2020 and 2021, it offered a series of additional pandemic emergency longer-term refinancing operations (PELTROs) to ensure sufficient liquidity and smooth money market conditions duting the pandemic period.
  3. Introduction of negative interest rates: A negative interest rate was introduced on the deposit facility in June 2014 and was until the reintroduction of positive deposit facility rate in September 2022 applied also to bank's excess reserves holdings or from the end of October 2019 to part of bank's excess reserves holdings.  
  4. Two-tier system for remuneration of excess reserves: From the end of October 2019 until the middle of September 2022, a part of excess reserves up to six times of institutions' reserve requirements had been remunerated at 0%, the rest of excess reserves had been remunerated at negative deposit facility rate. Following the raising of the deposit facility rate to above zero, the Governing Council suspended the two-tier system in the middle of September 2022 by lowering the multiplier from 6 to 0.
  5. Liquidity provision in foreign currencies: US dollar liquidity providing operations have been available to banks since December 2007 (as have Swiss franc liquidity providing in the certain period). They are currently executed with a maturity of one week.
  6. Expansion of eligible collateral for Eurosystem loans: The requirements with regard to the eligibility of financial assets as collateral have been eased slightly since 2008, at the same time risk control measures have been adjusted appropriately.
  7. Expansion of the list of eligible counterparties for fine-tuning operations: Since 2008 fine-tuning operations have been available to all counterparties that are allowed to participate in open market operations.

In addition to the non-standard measures, in July 2013 the Governing Council introduced its forward guidance. The Eurosystem announces its expectations of the future developments of the ECB key interest rates and the time horizon for executing the Asset purchase Programme, depending on the outlook for price stability. It thereby aims to bring greater certainty with regard to interest rates and the intentions of future monetary policy, which acts to stabilise the economic environment. The publication of forward guidance was largely abandoned in July 2022.

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