The European Central Bank has decided to buy covered bonds issued by companies in the euro zone, and lend banks unlimited funds for up to 12 months, pulling out all the stops to boost the euro zone economy.
President Jean-Claude Trichet also announced that the European Investment Bank would be allowed to gain access to ECB funding by taking part in the central bank's money market operations.
The decision follows similar "quantitative easing" measures by central banks including the Bank of England, US Federal Reserve and Swiss National Bank, and comes after months of deliberation at the ECB about how far to go to support the economy.
"The Governing Council decided today to proceed with its enhanced credit support approach," Mr Trichet told a news conference.
"We will conduct liquidity-providing, longer-term refinancing operations with a maturity of 12 months," he said. The first, to be announced on June 23, would be at the prevailing main refi rate, which the ECB earlier cut by 25 basis points to a new record low of 1 per cent.
Banks could borrow all the cash they wanted at a fixed rate. Until now, refinancing operations were up to six months only.
"The Governing Council has decided in principle that the Eurosystem will purchase euro-denominated covered bonds issued in the euro area," he added. Details would be announced after the ECB meeting of June 4th.
"These decisions have been taken to promote the ongoing decline in money market term rates, to encourage banks to maintain and expand their lending to clients, to help to improve market liquidity in important segments of the private debt security market, and to ease funding conditions for banks and enterprises," he said.
"We will display in our communication of our next meeting all the technicalities that goes with this purchase of covered bonds, which is something that is highly technical.
"I would say at this stage we expect to engage in a program which could be around €60 billion."
Money market rates have hit record lows in recent weeks in response to the ECB's generous liquidity provision and interest rate cuts but lending growth to firms and households is still slowing.
Reuters