Monetary policy

What are the asset purchase programmes (APPs)?

The asset purchase programmes are part of the series of new monetary policy instruments used by the European Central Bank (ECB) to maintain price stability against a backdrop of interest rates being close to their effective lower bound. Asset purchase programmes, also known as quantitative easing (QE), entail a significant expansion of the central bank’s balance sheet.

When the ECB buys financial assets, such as bonds, the increased demand for these assets drives up their prices. As a result, market interest rates decline (since bond yields are inversely proportional to bond prices), which also ultimately passes through to bank lending rates. As a result, these programmes make it easier to access credit, not only for bond issuers (governments, companies and banks), but also for those agents more reliant on bank lending, such as households and SMEs, thereby stimulating consumption and investment.

Since 2014 the ECB has purchased securities under its asset purchase programme, including public sector debt securities (through the PSPPOpens in a new window), corporate bonds (CSPPOpens in a new window), asset-backed securities (ABSPPOpens in a new window) and covered bonds (CBPPOpens in a new window). Further to these purchase programmes, the pandemic emergency purchase programme (PEPPOpens in a new window) was launched in March 2020 to counter the risks posed by the COVID-19 outbreak to the euro area economy and the monetary policy transmission mechanism.

In line with its commitment to include climate change considerations within its mandate, the ECB has started to take relevant climate change risks into account in its due diligence procedures for its corporate sector asset purchases in its monetary policy portfolios. The ECB will adjust the framework guiding the allocation of corporate bond purchases to incorporate climate change criteria, including the alignment of issuers with, at a minimum, EU legislation implementing the Paris Agreement through climate change-related metrics or commitments of the issuers to such goals. Furthermore, the ECB will start disclosing climate-related information on the corporate sector purchase programme (CSPP) by the first quarter of 2023, complementing the disclosures on the non-monetary policy portfolios (see ECB press release File PDF: Opens in a new window (221 KB) of 4 February 2021).