The European Central Bank launched a new asset purchase program worth EUR 750 billion at an extraordinary meeting. This move seems to calm investors.
The ECB concluded its regular meeting on 12 March. At that time, the market was very disappointed in the bank's operations, which did not even lower interest rates, but introduced the new LTRO program for a small amount – as it turns out now.
The activities of other central banks and governments are carried out on such a gigantic scale that last week's announcements of the European Central Bank looked like a drop in the sea. From here, probably on March 18, an important decision was made. The ECB reached for heavy guns to combat the economic consequences of a pandemic.
The ECB has launched a new asset purchase program worth EUR 750 billion. The bank will buy government and corporate debt for no less than by the end of the year. The goal is to ensure that all sectors of the economy – including employees, entrepreneurs, banks and governments – benefit from supportive financing conditions that enable them to absorb shock. The European Central Bank has also committed itself to increase asset purchase programs and adjusting their composition as long as necessary. The name of this program is the Pandemic Emergency Purchase Program (PEPP).
The program will last at least until the end of 2020. Even if the epidemic ends faster, the ECB will continue to operate until December. In turn, if the epidemic lasts longer, or if the economic conditions do not improve so quickly, the ECB will be able to postpone the program closing date.
Equity markets seem to respond positively to a new initiative in the eurozone, as evidenced by stock market moves. Increasing financial liquidity is very desirable at the moment and may calm down panicking investors. Therefore, it is possible that in the near future there may be calming down in the markets in the form of side trends, but still with increased volatility.
Daniel Kostecki, Chief Analyst Conotoxia Ltd.
Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results.
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