COVID-19 & Monetary Policy Operations

The coronavirus pandemic has led to an increasing tightening of financial market conditions across the euro area. In this light monetary policy operations have a very important role to play to keep the financial sector liquid and ensure supportive financial conditions for all sectors of the economy.  

Ms Josette Grech, manager in charge of Monetary Operations and Collateral Management, explained further.

Josette Grech

How did the Eurosystem react to the coronavirus pandemic and what were the measures introduced to ensure that all sectors of the economy can benefit from supportive financing conditions?

The Governing Council of the European Central Bank took several monetary policy decisions in March and April 2020, with the aim of providing sufficient liquidity to the banking system.

The Governing Council announced a new Pandemic Emergency Purchase Programme (PEPP) with an envelope of €750 billion that will run until the end of the year. This temporary asset purchase programme of private and public securities is aimed to counter the serious risks to the monetary policy transmission mechanism and the outlook for the euro area posed by the coronavirus outbreak. The Governing Council will terminate net asset purchases under PEPP once it judges that the coronavirus crisis phase is over, but not before the year end.

Furthermore, in order to provide immediate liquidity support to banks and to safeguard money market conditions, the Governing Council launched a series of additional longer-term refinancing operations. The operations are conducted as fixed rate tender procedures with full allotment and the rate in these operations will be fixed at the average of the deposit facility rate over the life of the respective operation. All operations will mature on 24 June 2020.

The Governing Council also decided to modify some of the key parameters of the third series of targeted longer-term refinancing operations (TLTRO-III) to support the continued access of firms and households to bank credit in the face of disruptions and temporary funding shortages associated with the coronavirus outbreak.

Finally, the Governing Council also adopted a package of temporary collateral easing measures to facilitate the availability of eligible collateral measures to facilitate the availability of eligible collateral for Eurosystem counterparties to participate in liquidity providing operations.

What is the role of the Central Bank of Malta in these measures and will the local financial system benefit from such measures?

The Central Bank of Malta being a member of the euro system implements all monetary policy decisions decided by the Governing Council with local credit institutions. The bank participates in the PEPP by purchasing Government Malta securities from eligible counterparties. Furthermore, credit institutions licensed in Malta and eligible to participate in monetary policy operations can benefit from the recent liquidity providing measures explained above.

While Maltese banks are very liquid compared to their European peers, the measures announced by the European Central Bank will undoubtedly benefit the Maltese economy. This is particularly important in the light of the schemes announced by the Government of Malta to guarantee new bank loans and to impose a moratorium on existing credit facilities. The PEPP programme will also ensure that the Malta Government Stocks market will remain liquid.   

Date uploaded: 24/4/2020