First, to improve the pass-through for each euro of liquidity injected into the financial system to private sector borrowing costs and second, to reinforce the accommodative monetary policy stance. Credit easing measures influence the economy via three main transmission channels: direct pass-through, portfolio rebalancing and signalling.2 The direct pass-through channel is the most prominent one.
It directly lowers banks borrowing costs, which in turn lower lending rates for firms and households, and this supports consumption and investment. In the case of the TLTROs I, which were specifically aimed at encouraging bank lending to the private sector in an environment of deleveraging, banks were able to borrow at a very favourable interest rate from the Eurosystem.