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Back In The Game

19 March 2020 by jbchevrel

Central Banks of the world, unite! The ECB announced a new purchase programme called Pandemic Emergency Purchase Programme (PEPP) designed to ease renewed frictions in the euro area sovereign and credit markets and to funnel liquidity into the real economy. To launch a new temporary asset purchase programme of private and public sector securities to counter the serious risks to the monetary policy transmission mechanism and the outlook for the euro area posed by the outbreak and escalating diffusion of the coronavirus, COVID-19. This new Pandemic Emergency Purchase Programme (PEPP) will have an overall envelope of €750b. Purchases will be conducted until the end of 2020 and will include all the asset categories eligible under the existing asset purchase programme (APP). For the purchases of public sector securities, the benchmark allocation across jurisdictions will continue to be the capital key of the national central banks. At the same time, purchases under the new PEPP will be conducted in a flexible manner. This allows for fluctuations in the distribution of purchase flows over time, across asset classes and among jurisdictions. A waiver of the eligibility requirements for securities issued by the Greek government will be granted for purchases under PEPP. Greece CDS tightened -200bp on the day, in response. The GC will terminate net asset purchases under PEPP once it judges that the COVID-19 crisis phase is over, but in any case, not before the end of the year. Great! They expanded the range of eligible assets under the CSPP to non-financial commercial paper, making all commercial papers of sufficient credit quality eligible for purchase under CSPP. Also, overnight, the RBA announced a comprehensive package to ease monetary policy further (see here for our Australian colleague’s thoughts). It cut its key interest rate by another 25bp to 0.25%. It put a yield cap on 3y Australian government bonds that it says will be achieved by sovereign and semi purchases across the yield curve. It launched a new 3y term funding facility to support SMEs. It lifted the rate that excess reserves are remunerated to 10bp to shield the banking system from excessive costs of rising reserves.