The European Central Bank
in its meeting today, June 4, 2020, decided to extend the Quantitative Easing by
six months, and the amount of financing provided to the European banking system
by €600 billion, to €1.35 trillion.
The aftermath of the
pandemic has brought fears that a recession is at the doorstep of the European economies,
and expectations are that a slowdown of GNP will reach 8% or even higher. At
the same time the central bank has set an inflation target of 2%, while
interest rates will remain stable.
The ECB has set three
different interest rates: the main refinancing rate, which is the interest rate
banks pay to the ECB for financing for a period of one week. In this case,
banks must provide collateral which is a guarantee that the funds will be
returned.
The second interest rate
is the marginal facilitation facility interest rate, which is the overnight
interest rate that banks pay to the ECB. Banks also provide securities as
collateral.
And lastly, the third
interest rate in the monetary policy of the ECB is the interest rate
facilitation deposit. This interest rate is the rate banks receive for overnight
deposits kept at the ECB. Since 2014 this rate is negative.
Bill T. Alexandratos
June 2020
