ECB Holds Interest Rates Steady... Expands Asset Purchases and Liquidity Supply (Comprehensive)

[Asia Economy New York=Correspondent Baek Jong-min] The European Central Bank (ECB) chose to expand liquidity supply instead of cutting interest rates as a remedy for the economic downturn caused by the novel coronavirus infection (COVID-19).

On the 12th (local time), the ECB held a monetary policy meeting and decided to expand net asset purchases and implement a Long-Term Refinancing Operation (LTRO). There was no expected decision to cut interest rates.

The ECB decided to temporarily increase the scale of net asset purchases by 120 billion euros (162.7 trillion KRW) until the end of the year. The existing net asset purchases of 20 billion euros (27.12 trillion KRW) per month will be maintained. The ECB also decided to introduce the LTRO, which provides loans to European banks at low interest rates.

However, the ECB decided to keep the benchmark interest rate at the current 0%, and maintain the deposit rate and marginal lending rate at the current -0.50% and 0.25%, respectively. The market widely expected that the ECB would lower the deposit rate by 0.1 percentage points, following the U.S. Federal Reserve's (Fed) surprise 0.5 percentage point rate cut.

The ECB explained this measure by stating, "There are no signs of liquidity shortages in the financial markets and banking system, but we will provide an effective backstop if necessary."