European Central Bank rolls out Dh3tn package to fight virus impact on economy

ECB chief Lagarde says "extraordinary times require extraordinary action"

The European Central Bank on Wednesday announced a surprise 750-billion-euro scheme to purchase government and corporate bonds, as it joined other central banks in stepping up efforts to contain the eShow more

The European Central Bank (ECB) rolled out a ‎€750 billion (Dh3 trillion) new bond buying programme to stem the impact of the coronavirus pandemic on the economies of the 19-member bloc and their financial markets.

The new bond-purchase scheme, known as the Pandemic Emergency Purchase Programme (PEPP), was launched after a ECB policy makers held an emergency call late on Wednesday. The programme will run until the end of 2020 and will include all the asset categories eligible under the existing asset purchase programme (APP), the ECB said in a statement on March 18.

"Extraordinary times require extraordinary action," ECB President Christine Lagarde said on Twitter. "There are no limits to our commitment to the euro. We are determined to use the full potential of our tools, within our mandate."

The ECB's move to calm markets came as Schengen member states of Europe shut down their borders, as the continent became the new epicentre of the pandemic prompting an investor sell off across stock markets and slowdown in economic activity.

"This is a distinct echo of 'whatever it takes'," said Paul Diggle, Senior Economist, Aberdeen Standard Investments. "Indeed, that is becoming a common refrain among policymakers these days. We would not rule out even larger ECB measures in the weeks and months ahead, including working with the European Stability Mechanism to provide essentially monetised fiscal support, and even anchoring sovereign bond yields and spreads across the bloc.

The UK has also committed a 330bn pound package of financial measures to support businesses facing a potential shutdown, while the US Federal Reserve cut interest rates and Washington is on the verge of rolling out an emergency stimulus programme of as much as $1.2tn.

The ECB said a waiver of the eligibility requirements for securities issued by the Greek government will be granted for purchases under the PEPP.

"The move should help to lower yields on European sovereign bonds which have risen as governments have announced additional spending measures in response to the impact of the coronavirus on economies," said Tim Fox, chief economist at Emirates NBD.

The ECB will expand its programme to include non-financial commercial paper, making all commercial papers of "sufficient credit quality" eligible for purchase.

Furthermore, it will ease collateral standards by adjusting the main risk parameters, it said. The ECB Governing Council will continue the net asset purchases under PEPP until it deems that the Covid-19 crisis phase is over, but not before the end of the year.

"The ECB will ensure that all sectors of the economy can benefit from supportive financing conditions that enable them to absorb this shock. This applies equally to families, firms, banks and governments," it said.

The Governing Council will do "everything necessary within its mandate" and is "fully prepared" to increase the size of its asset purchase programmes and adjust their composition, by "as much as necessary and for as long as needed," the ECB said.

The regulator will "explore all options and all contingencies to support the economy through this shock," it said.

The Governing Council will also consider revising the ECB's self-imposed limits "to the extent necessary to make its action proportionate to the risks that we face," it said.

The ECB will not tolerate any risks to the smooth transmission of its monetary policy in all jurisdictions of the euro area," it added.

The pandemic is the biggest challenge to the global economy since the 2008 global financial crisis and has wiped off at least $17 trillion (Dh62.4tn) from stock markets worldwide. Europe is badly hit by the virus which has infected 218,000 people and killed more than 8,800 dead as of Thursday. More than 84,000 people have recovered from the virus.