Developing a pandemic emergency purchase programme: Unconventional monetary policy to tackle the coronavirus crisis

Summary:

The Treaty on the Functioning of the European Union specifies the maintenance of price stability in the euro area as the primary objective of EU single monetary policy. Subject to that, it should also contribute to the achievement of the Union's objectives, which include 'full employment' and 'balanced economic growth'. Responsibility for monetary policy conduct is attributed to the Eurosystem, which carries out its tasks through a set of standard instruments referred to as the 'operational framework'.

To tackle the financial crisis, the Eurosystem has complemented its regular operations by implementing several non-standard monetary policy measures since 2009. The first strand of these measures had the primary objective of restoring the correct functioning of the monetary transmission mechanism by supporting certain distressed financial market segments, playing an important role in the conduct of monetary policy. A second strand of non-standard measures was aimed at sustaining prices and fostering economic growth by expanding the size of the Eurosystem balance sheet through massive purchases of eligible securities, including public debt instruments issued by euro-area countries.

Net purchases were conducted between October 2014 and December 2018, after which the Eurosystem continued to simply reinvest repayments from maturing securities to maintain the size of cumulative net purchases at December 2018 levels. Due to prevailing conditions, however, in September 2019, the European Central Bank (ECB) Governing Council decided to recommence net purchases in November of the same year 'for as long as necessary to reinforce the accommodative impact of its policy rates'. The spread of the coronavirus in early 2020 has impaired growth prospects for the global and euro-area economies and made additional monetary stimulus necessary. In this context, the ECB has increased the size of existing asset purchase programmes, and launched a temporary, separate and additional pandemic emergency purchase programme (PEPP).