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Essentials of Monetary Policy

European Central Bank (ECB). No Rate Cut, but Measures to Avoid a Liquidity Crisis

March 12, 2020
François Dupuis, Vice-President and Chief Economist
Mathieu D’Anjou, Deputy Chief Economist • Hendrix Vachon, Senior Economist

After the Federal Reserve and the Bank of Canada last week, and the Bank of England yesterday, the ECB has now announced measures to respond to the turmoil associated with the coronavirus pandemic. Contrary to what was announced elsewhere, the ECB chose not to reduce its key rates. However, it did announce a series of measures that should help the euro zone’s financial system. In fact, financial institutions will be able to benefit from the ECB’s increased financing and more favourable conditions. They will also be under less pressure to achieve their regulatory capital and liquidity requirements. The additional asset purchases mostly targeting private-sector bonds should help limit the recent increase in credit spreads and help businesses to finance themselves.