The European Central Bank on Thursday presented a series of measures to counter the crisis linked to the coronavirus epidemic. The ECB is notably committed to supporting SMEs and buying more debt. The institution chaired by Christine Lagarde however announced the maintenance of its key rates, which did not please the markets.
A targeted loan program
"The spread of the coronavirus has inflicted a major shock on the prospects for growth in the world market and that of the euro zone," said Christine Lagarde, at her press conference held in Frankfurt. "This shock will reduce production and internet and external demand, following the negative impact of the necessary containment measures".
The monetary institution is launching an unprecedented program of loans targeted at SMEs, so that banks help businesses hit by the epidemic to make ends meet. The objective: to avoid a wave of bankruptcies, which would have catastrophic social consequences.
The ECB will notably launch advantageous loans targeted at SMEs and intends in particular to buy 120 billion euros of debt, particularly that of the "private sector" by the end of the year. An effort which comes to reinforce the program relaunched last November, already relating to the purchase of 20 billion euros of public and private assets per month.
Lagarde: In line with our mandate, the Governing Council is determined to support households and firms in the face of the current economic disruptions and heightened uncertainty
- European Central Bank (@ecb) March 12, 2020The European Central Bank also on Thursday authorized banks to operate temporarily below current capital and liquidity requirements. "These measures have been taken so that banks can continue to play their role in financing the real economy as the economic effects of the coronavirus become apparent," added Christine Lagarde in a statement. "We are determined to support individuals and businesses," she said.
Unchanged key rates
Unlike the other major central banks, the ECB did not touch its key rates, the main one (at zero since March 2016) allows banks to refinance. The deposit facility rate, which applies to cash deposited by commercial banks with the ECB, remains fixed at -0.5%, and the marginal loan facility rate at 0.25%.
Lagarde: We decided to keep the key ECB interest rates unchanged
- European Central Bank (@ecb) March 12, 2020An announcement badly received by European markets: the Paris Stock Exchange lost 10% in the early afternoon, the Dax of the Frankfurt Stock Exchange, it fell by 7.83%. Tumble that had already begun at the opening of European stock exchanges, Thursday morning, while waiting for the announcements of Christine Lagarde, the investors yielding to panic faced with the magnitude of the economic consequences of the coronavirus on the financial markets.
On the other side of the Atlantic, trade was completely suspended on Wall Street, after the 7% drop in the S&P 500, also linked to the epidemic.