Kieran Leonard including reinvestment · 2019-07-17 · Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15...
Transcript of Kieran Leonard including reinvestment · 2019-07-17 · Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15...
The Eurosystem’s asset purchase programme, including reinvestment
Christophe Beuve Head of division Bond Markets & International Operations Katharina Plessen-Mátyás Bond Markets and International Operations
13th ECB Central Banking Seminar July 2019
Kieran Leonard Bond Markets and International Operations
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The views expressed are those of the presenters and do not necessarily reflect those of the ECB.
1 APP Overview
Overview
2 APP operational goals
3 Implementation of reinvestments
4 Conclusion
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1 APP Overview 1 APP Overview
Overview
2 APP operational goals
3 Implementation of reinvestments
4 Conclusion
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-1.75
-1.50
-1.25
-1.00
-0.75
-0.50
-0.25
0.00
0.25
Jun 12 Jun 13 Jun 14
bps
Change in main refinancing rate (relative to June 2012)
20th and 80th percentiles range of lending rate changes
Impaired pass-through to lending rates
Source: ECB calculations. Last observation: 15 October 2014. Notes: Lending rates refer to euro area monetary financial institutions' lending rates on loans of up to EUR 1 mn to non-financial corporations.
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
Jan 10 Jan 11 Jan 12 Jan 13 Jan 14
% Annual HICP inflation 5-year/5-year inflation swap rate
Declines in both actual and expected euro area inflation
Source: Thomson Reuters, SDW, and ECB calculations. Last observation: 15 October 2014.
The APP: why was it needed?
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APP
TLTRO II
TLTRO III
Third Covered Bond Purchase Programme (CBPP3)
Asset-backed Securities Purchase Programme (ABSPP)
Public Sector Purchase Programme (PSPP)
Corporate Sector Purchase Programme (CSPP)
Reinvestment Phase
The APP: how did it happen?
The APP in context - an abridged timeline of non-standard measures
Source: ECB .
Negative deposit facility rate
TLTRO I
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The APP: which asset classes?
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PSPP ABSPP CBPP3 CSPP
Eligible Universe
Mon. pol. eligible government, agency and EU supra bonds
Mon. pol. eligible ABS (subject to Due Diligence assessment)
Mon. pol. eligible CBs
Non-financial and financial corporate securities (excluding unsecured bank bonds)
Min. rating CQS3
Maturity 1 — 30 years All 6 months — 30 years
Purchases Secondary market
Primary & Secondary Market
Implementation NCBs and ECB 6 NCBs NCBs and ECB 6 NCBs
Income/Loss Share
20% Yes
0
10
20
30
40
50
60
70
80
90
Mar
Jun
Sep
Dec Mar
Jun
Sep
Dec Mar
Jun
Sep
Dec Mar
Jun
Sep
Dec
2015 2016 2017 2018
EURbn PSPP CSPP CBPP3 ABSPP Average
How much APP?
4 recalibrations of APP net purchases from 2015 to 2018
Source: ECB Last observation: 31 December 2018.
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How much APP?
APP cumulative net purchases by programme
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400
800
1200
1600
2000
2400
2800
2015 2016 2017 2018 2019
EURbn
PSPP CBPP3 CSPP ABSPP
Net purchase phase
Reinvestment phase
Source: ECB Last observation: 31 May 2019.
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What was the impact of the APP?
Significant decline in sovereign and corporate bond yields in the euro area
Source: Markit iBoxx, Bloomberg, and ECB calculations. Last observation: 5 June 2019. * Euro area sovereign yield calculated as average yield of Germany, Italy, Spain and France.
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0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
Jan 2012 Jan 2013 Jan 2014 Jan 2015 Jan 2016 Jan 2017 Jan 2018 Jan 2019
% Euro area sovereign yield (average)* Yield, euro area investment grade non-financial corporates
What was the impact of the APP?
Source: Based on Eser, Lemke, Nyholm, Radde and Vladu (2019). Notes: The left panel shows by how much the term premium component of sovereign euro area yields with maturities of one year to ten years are estimated to be compressed due to the APP, at the time of the launch of the APP (Q1 2015), as well as at the end of the net purchase phase in December 2018. The right panel shows point estimates of the ten-year yield term premia compression over time. The confidence band reflects parameter uncertainty around these point estimates, constructed using bootstrap/Monte Carlo resampling techniques. Euro area yields are proxied by the GDP-weighted zero-coupon yields of the four largest euro area jurisdictions.
Significant decline in estimated term premium on euro area sovereign yields
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0100200300400500600700800900
1000
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EURbn Held CSPP eligible universe
Non-held CSPP eligible universe
Start Reinvestment Phase
Evolution of CSPP-eligible universe and holdings
CSPP Impact
• Positive impact via direct pass-through, with positive spill overs to non-eligible fixed income securities
Corporate bond spreads in EUR denominated investment grade vs high yield sector
Source: iBoxx. Last observation: 31 May 2019.
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Source: iBoxx. Last observation: 31 May 2019.
0
50
100
150
200
250
300
0
100
200
300
400
500
600
Jan-
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pr-1
6Ju
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Oct
-16
Jan-
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pr-1
7Ju
l-17
Oct
-17
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pr-1
8Ju
l-18
Oct
-18
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pr-1
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Start purchases CSPP
iBoxx EUR HY iBoxx EUR Non-Financials (rhs)
Start Reinvestment Phase
bps bps Announcement CSPP
0
50
100
150
200
250
300
Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Jan-19
bps ESᵉ IE ITᵉ NL PTᵉ
Start Reinvestment Phase
CBPP3 and ABSPP impact
Source: iBoxx indices. Last observation: 31 May 2019.
Covered bond asset swap spreads, per selected jurisdiction
Spreads of AAA-rated* floating rate RMBS with 5-7 years maturity (bps)
Source: JPM Indices. Note: WAL at issuance 5-7 years, AAA rated (ECB coll. Eligible labelled e). Most spreads over 3-month Euribor Last observation 31 May 2019.
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-20
0
20
40
60
80
100
120
Aug-14 Aug-15 Aug-16 Aug-17 Aug-18
bps DE ES IT FR
Start purchases CBPP3
Announcement CBPP3
Start Reinvestment Phase
Impact on lending rates
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Start CBPP3 and ABSPP
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
Jan2007
Jan2008
Jan2009
Jan2010
Jan2011
Jan2012
Jan2013
Jan2014
Jan2015
Jan2016
Jan2017
Jan2018
Jan2019
%
Broad-based decline in bank lending rates to companies
Source: ECB calculations. Last observation: 30 April 2019. Notes: The indicator for the total cost of lending refers to non-financial corporations and is calculated by aggregating short and long-term rates using a 24-month moving average of new business volumes. The cross-country dispersion displays the min and max range over a fixed sample
Germany Spain France Italy Euro area Cross-country dispersion
Start CBPP3 and ABSPP
Impact on loan growth
-20
-10
0
10
20
30
40
Jan2007
Jan2008
Jan2009
Jan2010
Jan2011
Jan2012
Jan2013
Jan2014
Jan2015
Jan2016
Jan2017
Jan2018
Jan2019
Country dispersion DE ES FR IT NL EA
Loan growth to companies gradually strengthening
Source: ECB calculations. Last observation: 30 April 2019 Notes: Adjusted for sales, securitisation and cash pooling activities. The country dispersion is calculated as min/max over a fixed sample of 12 euro area countries.
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Start CBPP3 and ABSPP
Now: reinvestment of APP stock and forward guidance
Expected redemptions until May 2020
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10,000
15,000
20,000
25,000
30,000
35,000
40,000
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9
Aug
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Sep-
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Oct
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Nov
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Dec
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Jan-
20
Feb-
20
Mar
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Apr
-20
May
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PSPP CBPP3 CSPP ABSPP Average
Source: ECB. Last observation: 31 May 2019.
• The Governing Council intends to continue reinvesting, in full, the principal payments from maturing securities purchased under the asset purchase programme for an extended period of time past the date when it starts raising the key ECB interest rates, and in any case for as long as necessary to maintain favourable liquidity conditions and an ample degree of monetary accommodation.
• Cumulative net purchases under each constituent programme will be maintained at their respective levels as at the end of December 2018
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1 APP Overview
Overview
2 APP operational goals
3 Implementation of reinvestments
4 Conclusion
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Operational implementation reflects the specificity of the euro area
CB Jurisdictions Assets purchased Purchase methods
BoE UK • Government bonds • Corporate bonds
• Reverse auctions
Fed US • Treasury securities • Agency mortgage-backed securities • Agency debt securities
• Reverse auctions
BOJ JP • Short-term government bonds • Long-term government bonds • Corporate bonds • Commercial paper • Real estate investment trusts • Equity ETFs (exchange traded funds)
• Reverse auctions
Eurosystem (20 central banks)
AT, BE, CY, DE, EE, ES, FI, FR, GR, IE, IT, LT, LU, LV, MT, NL, PT, SI, SK
• Central government bonds • Agency bonds • Regional and local government
bonds • EU supranational bonds • Corporate bonds • Asset-backed securities • Covered bonds
• Bilateral: Electronic platforms and voice
• Reverse auctions: PSPP: BdF, DNB, Lietuvos Bankas, Bundesbank
• Bids wanted in competition: ABSPP
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Key operational goals
Provide necessary monetary accommodation
Ensure market neutrality in APP implementation, in particular: - preserve the price discovery mechanism - limit distortions in market liquidity
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7 asset classes, 19 individual jurisdictions, by 20 Central Banks
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EUR bn % Excess Liquidity (LHS) EONIA Deposit rate Marginal lending rate MRO rate
Provide necessary monetary accommodation
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Source: ECB. Last observation: 03 May 2019.
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(RHS)
A balancing act: to impact prices, but not relative pricing and price discovery
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• Monthly totals: not daily
• Adjusting for: ˗ Seasonal liquidity ˗ Local conditions ˗ Local conventions ˗ Market moving events ˗ CTD contracts
• 350+ counterparties
• PSPP acted as a buffer to ensure fulfilment of overall monthly purchase targets
• Securities lending
Rule-based approach… …with some flexibility
• Ex ante communication on the operational parameters
• Clear and observable monthly APP targets
• Regular purchases
• Market benchmark (private programmes)
• ECB capital key (PSPP)
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Regular disclosure on APP purchases and holdings
PSPP: Preserve the price discovery mechanism
Spreads versus 10-year German government bonds since the beginning of PSPP
Source: ECB calculations. Last observation: 5 June 2019. Note: 10-year euro area government bond spreads against Germany. All selected bonds are benchmark.
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2
PSPP: Limit distortions in market liquidity
Liquidity indicators suggest orderly market conditions
Source: Bloomberg, EuroMTS Ltd and ECB calculations Notes: An increase (decrease) in the indicators implies a deterioration (improvement) in the liquidity situation. The chart shows the five-day moving average of the indicators. The order book indicator is a euro area-wide GDP-weighted average of ten-year sovereign bonds and the execution-based indicator is a volume-weighted average for sovereign bonds traded under the PSPP. They are normalised to 100 on 9 March 2015, when purchases under the PSPP began. Last observation: 21 December 2018. Values above 600 are scaled down by a factor of 4.
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0%10%20%30%40%50%60%70%80%90%
100%
Jul-1
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Share of special trades
Start cash collateral
Start Reinvestment Phase
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Loans against securities collateralLoans against cash collateral
Start Reinvestment Phase
Lending against cash collateral facilitates bond and repo market functioning
Source: ECB Note: Amounts are in market value terms Last observation: 31 April 2019.
APP Securities lent out by type of collateral Repo market developments for German government bonds
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Start cash collateral
Source: ECB calculations, NEX Data and MTS Markets. Last observation: 31 April 2019. Note: Special trades are defined as those trades priced at least 25 basis points lower than the cheapest specific German bond on a given day. They are expressed as a share of the total volume on any given day.
EURbn
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2014 2015 2016 2017 2018
EUR mn CBPP3 SM CBPP3 PM CSPP SMCSPP PM ABSPP SM ABSPP PM
Private sector programmes: Preserve market liquidity
• During the net purchase phase, purchases under the private sector programmes were conducted alongside other market participants in both the primary and secondary markets.
• The shares varied over time as a reflection of issuance patterns and secondary market liquidity.
Purchases broken down by primary and secondary market (EUR m) for the net purchase phase
Source: ECB. Last observation: 31 December 2018. Notes: Purchases approximated from change in holdings. Negative values for a subcategory indicate that redemptions were greater than gross purchases for that period.
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20%
25%
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< 20
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2010
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CSPP-eligible bond universe CSPP holdings
CSPP: Reactive to liquidity conditions to ensure market neutrality
Source: ECB. Note: CSPP holdings as of end of Q1 2019. CSPP holdings with a remaining maturity below 6 months are excluded. The numbers may not sum to 100% due to rounding. The eligible CSPP bond universe contains all bonds that are currently eligible for the CSPP.
Country and rating classification of CSPP holdings and CSPP-eligible bond universe
CSPP holdings according to the year of issuance of the bonds
• Purchases guided by market capitalisation • To guarantee smooth implementation, there is continuous communication on market conditions
Source: ECB, Bloomberg. Distribution based on nominal amounts. Last observation: 31 May 2019.
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2
year of issuance
CBPP3: Enhanced transparency and market neutrality
Source: ECB. Note: CBPP3 holdings and benchmark as of end of Q1 2019. The numbers may not sum to 100% due to rounding. Distribution based on nominal amounts.
Country and rating classification of CBPP3 holdings and CBPP3-eligible benchmark
• Transparency has played a central role in the APP
• Regular disclosure of information on APP purchases and holdings was recently complemented by additional information on CBPP3 and ABSPP
• CBPP3 purchases were broadly oriented towards a market capitalisation-based benchmark
• CBPP3 benchmark weights attached to certain covered bond categories decreased over time
• CBPP3 benchmark updated regularly so as to guide future purchases
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2
ABSPP: Enhanced transparency and market neutrality
Source: ECB. Note: ABSPP holdings and universe as of end of Q1 2019. The numbers may not sum to 100% due to rounding. Distribution based on nominal amounts.
Country and rating classification of ABSPP holdings and ABSPP-eligible benchmark
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• ABSPP portfolio composition reflects market capitalisation and market liquidity.
• Gross ABSPP purchases were more broadly distributed across jurisdictions than the holdings indicate, reflecting the prevalence of different asset types in each country.
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1 APP Overview
Overview
2 APP operational goals
3 Implementation of reinvestments
4 Conclusion
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PSPP represents more than 80% of total APP holdings
Last observation: 31 May 2019
1%
10%
7%
82%
APP holdings breakdown (%)
ABSPP CBPP3 CSPP PSPP
Holdings at amortised cost (EUR billion)*
ABSPP
26
CBPP3
262
CSPP
178
PSPP
2,093
Total APP
2,559
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PSPP: technical parameters for reinvestment phase
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• The allocation across eligible jurisdictions will continue to be guided by the ECB’s capital key, now taking the appropriate stock perspective.
• Any adjustment to the portfolio allocation across jurisdictions will be gradual.
• The principle of market neutrality via smooth and flexible implementation continues.
• Reinvestment of principal redemptions will be distributed over the year to allow for a regular and balanced market presence.
Reinvestments will continue to absorb a significant share of issuance
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Gross PSPP purchases as a share of planned gross issuance
0
5
10
15
20
25
30
35
40
DE ES FR IT
2018 2019 2020
Source: ECB Note: refers to central government only.
%
Private sector programmes: Technical parameters for reinvestment phase
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Aim to maintain the size of its cumulative net purchases under each constituent programme of the APP at their respective levels as at the end of December 2018
Limited temporary deviations in the overall size and composition of the APP may occur for operational reasons
Market capitalisation will continue to be the guiding principle for reinvestment purchases
Will the Eurosystem continue to buy in the primary market in the reinvestment phase? Clarified in the Q&As of the individual programmes.
- CSPP primary market participation is permitted but not currently foreseen - CBPP3 purchases of securities in the primary market continues to be permitted
as necessary - ABSPP remains active in both the primary and secondary ABS markets during
the reinvestment phase
Private sector programmes: CSPP transition to the reinvestment phase
Evolution of the average CSPP trade size New Issuance Premium (NIP) (bps; 30 deal moving average weighted by issue size)
0
5
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15
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25
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35
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30 deal average
Source: Eurosystem, Bloomberg. Note: New Issuance Premium for CSPP eligible issuances. Latest observation: 21 May 2019.
• Reduced CSPP presence in 2019 does not seem to have major impact in corporate bond market
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Start Reinvestment Phase
5060708090
100110120130140150
Jun-
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Index average ticket size
Start Reinvestment Phase
Source: ECB. Note: Index: June 2016 = 100. Last observation: 31 May 2019.
0%
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2013 2014 2015 2016 2017 2018 2019
Other Insurance funds & pension fundsAsset Managers BanksCentral Banks & Official Inst.
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30 Deal Average
Private sector programmes: CBPP3 transition to the reinvestment phase
Source: ECB calculations. Note: Figures are for EUR benchmarks so they include non-eligible deals. Central banks include sovereign/official institutions. Last observation: 31 May 2019.
Covered Bond Primary Market Breakdown (%; breakdown of primary market deals by investor type)
Source: Eurosystem, Bloomberg. Note: New Issuance Premium for CBPP3 eligible issuances. Last observation: 31 May 2019.
• The drop in central bank allocations in primary markets in 2019 has not left a void. Banks took up a larger share of supply in the primary market, keeping NIP low and relatively stable.
New Issuance Premium (NIP) (bps; 30 deal moving average weighted by issue size)
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Start Reinvestment Phase
1 APP Overview
Overview
2 APP operational goals
3 Implementation of reinvestments
4 Conclusion
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Conclusion
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• APP size and pace adequate to achieve monetary policy accommodation…
…while preserving the price discovery mechanism and market liquidity;
• Operational flexibility allows adjustment to local market specificities, supporting a market neutral implementation;
• Monetary policy accommodation continues in the reinvestment phase, with the same implementation objectives.
Thank you
for your attention!
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