The program of the European Central Bank (ECB) for purchase of corporate bonds has helped to reduce the cost of financing companies, which should support investment and economic growth in the Eurozone. The announcement of Corporate Sector Purchase Programme (CSPP) on March 10 was followed by a significant contraction in the spread between bonds issued by non-financial enterprises and risk-free rates. Spreads on bonds of non-financial corporations fell sharply on the day of the announcement and continued to shrink dramatically. The process was terminated only by the temporary volatility in May and June related to the referendum for Brexit.
Purchases of corporate bonds are an additional component of large-scale program of the ECB’s purchase of assets, which began in March 2015, covering mainly government bonds. The central bank hopes that by the program will stimulate the rise in inflation in the 19-nation currency bloc, which is currently only 0.2%. In the medium term, the ECB wants inflation just below 2%.
According to the economists, the decisions relating to monetary policy, taken in March, which include launching CSPP program, reducing the interest rate on the deposit facility of the ECB and four new series Targeted Longer-Term Refinancing Operations (TLTRO-II), improved external financing conditions for companies. Data analysis within two weeks after the announcement of the program for the purchase of corporate debt, shows that funding costs have decreased.
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