ECB shrugged off the improvement in the economic data since the last meeting, reinforcing its dovish stance and raising the likelihood of further easing measures. The focus of the meeting was arrangements for TLTRO III and the tiered deposit rate system. For the former, President Mario Draghi has suggested the criteria for pricing the operations and pledged to announce the technical terms in forth coming meetings. Few was disclosed regarding the latter as this remained in discussion Draghi also refrained from explicitly commenting whether the system would pave the way for further reduction in interest rates. At the meeting, ECB decided to leave the main refi rate, the marginal lending rate and the deposit rate unchanged at 0%, 0.25% and -0.40%, respectively. It would also continue to reinvest the proceed from maturing securities purchased during the QE program which was completed in December 2019.

Targeted Longer-Term Refinancing Operations (TLTROs III)

The central bank suggested that the details of the operation would “be communicated at one of our forthcoming meetings”. We expect to hear the announcement in June or July, given the measure would take effect in September. At noted in the statement, ECB would consider two criteria for the pricing of the operation. First, it will take into account a thorough assessment of the bank-based transmission channel of monetary policy. Second, it will consider further developments in the economic outlook.

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Tiered deposit Rate System

Regarding whether introduction of the system implies lower interest rates in the futures, President Draghi noted that the Committee had no discussion about the issue. Yet, the central bank would likely leave the policy rate in negative territory for an extended period of time. At the press conference, President Draghi reiterated his comments at the Watchers’ speech that “we will also consider whether the preservation of the favourable implications of the negative rates”. Meanwhile, proposing the Tiered deposit rate system is to mitigate “the possible side-effects, if any, [of negative interest rates] on bank intermediation”.

Forward Guidance

ECB made no change in the forward guidance in April, reiterating that the policy rates would “remain at their present levels at least through the end of 2019, and in any case for as long as necessary to ensure the continued sustained convergence of inflation to levels that are below, but close to, 2% over the medium term”. Meanwhile, it would “continue reinvesting, in full, the principal payments from maturing securities purchased under the asset purchase program for an extended period of time”. We expect ECB could adjust the forward guidance to signal that the policy rates would stay unchanged for a longer period of time in coming months, unless there are significant improvement in the economic conditions.

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