Breaking: ECB leaves key rates and PEPP unchanged, EUR/USD spikes above 1.2180

The European Central Bank (ECB) decided to leave the interest rates on the main refinancing operations, the marginal lending facility and the deposit facility unchanged at 0.00%, 0.25% and -0.50%, respectively, as expected.

Follow our live coverage of the ECB's policy announcements and the market reaction. 

The ECB further noted that it will continue to conduct net asset purchases under Pandemic Emergency Purchase Programme (PEPP) with a total envelope of €1,850 billion until at least the end of March 2022.

Market reaction

With the initial reaction, the EUR/USD pair spiked to a daily high of 1.2188 but quickly reversed its direction. As of writing, the pair was down 0.08% on the day at 1.2170.

Key takeaways from policy statement as summarized by Reuters

"ECB expects interest rates to remain at their present or lower levels until it has seen inflation outlook robustly converge to a level sufficiently close to but below, 2% within the projection horizon, and such convergence has been consistently reflected in underlying inflation dynamics."

"Based on a joint assessment of financing conditions and inflation outlook, ECB expects net purchases under PEPP over coming quarter to continue to be conducted at a significantly higher pace than during first months of the year."

"ECB will purchase flexibly according to market conditions and with a view to preventing a tightening of financing conditions that is inconsistent with countering the downward impact of the pandemic on the projected path of inflation."

"In addition, the flexibility of purchases over time, across asset classes and among jurisdictions will continue to support a smooth transmission of monetary policy."

"If favourable financing conditions can be maintained with asset purchase flows that do not exhaust envelope over net purchase horizon of PEPP, envelope need not be used in full."

"Equally, envelope can be recalibrated if required to maintain favourable financing conditions to help counter negative pandemic shock to the path of inflation."

"ECB will continue to reinvest principal payments from maturing securities purchased under PEPP until at least the end of 2023."

"In any case, future roll-off of PEPP portfolio will be managed to avoid interference with the appropriate monetary policy stance."

"Net purchases will continue at a monthly pace of €20 billion."

"ECB continues to expect monthly net asset purchases under app to run for as long as necessary to reinforce the accommodative impact of its policy rates, and to end shortly before it starts raising interest rates."

"ECB also intends to continue reinvesting, in full, principal payments from maturing securities purchased under app for an extended period of time past date when it starts raising interest rates, and in any case for as long as necessary to maintain favourable liquidity conditions and an ample degree of monetary accommodation."

"Finally, ECB will continue to provide ample liquidity through its refinancing operations."

"Funding obtained through the third series of TLTRO (TLTRO III) plays a crucial role in supporting bank lending to firms and households."

"ECB stands ready to adjust all of its instruments, as appropriate, to ensure that inflation moves towards its aim in a sustained manner, in line with its commitment to symmetry."