In order to preserve favourable bank lending conditions, the modalities of the new series of quarterly targeted longer-term refinancing operations (TLTRO III) were also changed, eliminating the 10 bp spread established on the interest rates applied to them and extending their maturity from two to three years. Finally, in order to support the bank-based transmission of monetary policy, a two-tier system for reserve remuneration was announced, such that part of banks’ holdings of excess liquidity will be exempt from the negative deposit facility rate. These decisions aim to counter the worsening growth and inflation outlook by means of a package of measures that complement one another, easing financial conditions by a different route. The resumption of net purchases, without a defined time limit, also has an important signalling effect with respect to the Governing Council’s commitment to meet its inflation aim, which is particularly relevant in the current context of inflation expectations at risk of becoming de-anchored. In addition, the period of time over which the net asset purchases and the reinvestment of existing assets will continue is anchored to the normalisation of interest rates, thus enhancing the consistency and complementarity of the different measures and their dynamic adjustment to inflation. In a setting of heightened uncertainty, this automatic adjustment of the expectations about the future path of monetary policy in the face of potential changes in the macroeconomic environment is particularly desirable.
The technical analysis assesses the recent trend of the indicators, their current status and also their expected behaviour in the coming quarters consistent with the macroeconomic forecasts prepared quarterly by the Banco de España. The forward-looking analysis is particularly relevant in this context since, in the event of the CCyB being activated, banks have 12 months to comply with the requirement. According to these indicators, the credit cycle continues to show values below the activation thresholds (having regard to the credit-to-GDP gap, which remains below its long-term trend value), although it is progressively converging on the long-term equilibrium level. In fact, forecasts as to how it will trend in the coming years indicate that this indicator will turn positive towards 2021 Q1 and might exceed the activation threshold in 2021 Q2. Some complementary quantitative indicators are along the same lines. This is particularly the case for credit intensity, which shows the weight of the change in credit relative to GDP, and the overvaluation of house prices currently show values close to equilibrium, with an upward trend that is forecast to continue over the next two years. Non-financial privatesector debt service, for its part, has maintained the reduction that marked its path at the start of the global financial crisis. Foreseeably, this reduction will continue, albeit more moderately so over the coming two years, given that the process of debt reduction has eased significantly and interest rates have less margin for further cuts.