ECB offers cheap loans, holds rates in virus crisis fight

[FRANKFURT] The European Central Bank leapt into coronavirus crisis-fighting mode on Thursday, unveiling fresh stimulus to keep credit flowing and help small businesses cope with the economic impact from the pandemic.

Eschewing the dramatic rate cuts of other central banks in recent days, the ECB's governing council said it would leave key interest rates unchanged, focussing instead on ramping up schemes offering super-cheap loans to banks and SMEs.

The Frankfurt institution held its deposit facility rate at -0.5 per cent, defying widespread expectations of a cut.

It also kept the rate on its main refinancing operations at zero and on its marginal lending facility at 0.25 per cent.

But it dramatically expanded its bank-lending programme known as TLTRO, or Targeted Long-Term Refinancing Operations.

It promised "considerably more favourable" terms from June 2020 until July 2021 to encourage banks to offer loans to companies and households, in the hopes of staving off a looming credit crunch as the virus disrupts supply chains, upends global travel and keeps people at home.

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For the first time, banks will be given an interest rate that in some cases "can be as low as 25 basis points below" the deposit rate - meaning banks will get paid to lend to the real economy.

"These operations will support bank lending to those affected most by the spread of the coronavirus, in particular small and medium-sized enterprises," the ECB said in a statement.

The ECB will also spend an additional 120 billion euros (S$189.3 billion) this year buying up government and corporate bonds as part of its massive quantitative easing scheme (QE).

The QE programme already sees the ECB purchasing 20 billion euros a month in bonds.

The stimulus boost comes after the US Federal Reserve and the Bank and the Bank of England responded to the virus fears by slashing key interest rates in recent days, as have central banks in other countries.

Despite the raft of extraordinary monetary policy actions so far, stock markets plunged again on Thursday after US President Donald Trump announced a surprise ban on travel from mainland Europe for a month.

The virus has killed over 4,700 people globally and fanned fears of a worldwide recession.

AFP