The European Central Bank on Wednesday unexpectedly said it would spend 750 billion euros (£709bn) on “emergency” bond purchases, as it joined other central banks in stepping up efforts to contain the economic damage from the coronavirus.
The so-called Pandemic Emergency Purchase Programme comes just six days after the ECB unveiled a big-bank stimulus package that failed to calm nervous markets, piling pressure on the bank to open the financial floodgates.
The $820-billion scheme to buy additional government and corporate bonds will only be concluded once the bank “judges that the coronavirus Covid-19 crisis phase is over, but in any case not before the end of the year,” the ECB said in statement.
The decision came after the bank’s 25-member governing council held emergency talks by phone late into the evening, following criticism the bank wasn’t doing enough to shore up the eurozone economy.
ECB chief Christine Lagarde said “extraordinary times require extraordinary action”.
The remarks echoed the legendary words of her predecessor Mario Draghi who in 2012 vowed to do “whatever it takes” to preserve the euro at the height of the region’s sovereign debt crisis.
In a tweet, French President Emmanuel Macron welcomed the ECB’s “exceptional measures” and urged governments to back it up with fiscal action and “greater financial solidarity” in the 19-nation currency club.
Tokyo stocks opened more than two percent higher on news of the ECB’s latest support package before slipping back.
Fears of global recession have grown as the pandemic triggers unprecedented lockdowns, upending normal life and bringing top economies to a grinding halt.
By massively buying up government and corporate debt, the ECB aims to keep liquidity flowing in a bid to encourage bank lending and investment.
The practice is known as quantitative easing (QE) and is a key crisis-fighting tool in monetary policy.
“The governing council will do everything necessary within its mandate,” it said in its statement, adding that the size of the asset purchases could be increased if needed.
To further reassure markets, the bank said it would consider relaxing some self-imposed restrictions on bond purchases – which could potentially help countries like debt-laden Italy whose bond yields have soared over the coronavirus panic.
The ECB also decided to ease some of its collateral standards to make it easier for banks to raise funds.
And for the first time, Greek bonds will be included in the bank’s asset purchases.
The immediate reaction from analysts was positive.
The ECB’s latest medicine could be “a game changer for the euro area economy and credit markets” if it was accompanied by fiscal action from governments, Pictet Wealth Management strategist Frederik Ducrozet said.