Ensuring a sufficiently accommodative stance Risk-free interest rates are the cornerstone of financial conditions across the euro area and are the foundations of our monetary policy stance. Our negative policy rates and our forward guidance on the expected path of policy rates anchor short to medium-term risk-free rates, while our asset purchases and forward guidance on reinvestment steer long-term rates by extracting duration risk from the financial system. The set of monetary policy measures currently in place underpins a risk-free yield curve (as captured by overnight index swap (OIS) rates) that is at record low levels (Chart 5). [3]  Chart 5 Euro area nominal OIS curve (percentages per annum)  Source: Refinitiv. https://www.ecb.europa.eu/press/key/date/2020/html/ecb.sp200519~e5203d3520.en.html  4/14  5/19/2020  Pandemic central banking: the monetary stance, market stabilisation and liquidity  Real interest rates – which are at the core of many financial valuation models and act as a fundamental macroeconomic adjustment mechanism by reconciling desired saving and investment patterns – are also at their lowest levels in decades. In comparative terms, a striking feature is that real yields in the euro area are below those in Japan across the curve (Chart 6). Chart 6 Real yield curves (percentages per annum)  Sources: Refinitiv, Consensus Economics and ECB calculations. Notes: Real sovereign bond yields are the difference between the nominal yield and the average Consensus Economics inflation expectation from April 2020 over the corresponding maturity. The latest observations are for 14 May for the euro area, 8 May for the United States and 5 May for Japan.

Notes: Net percentages are defined as the difference between the sum of the percentage of banks responding “tightened considerably” and “tightened somewhat” and the sum of the percentage of banks responding “eased somewhat” and “eased considerably”. The net percentages for responses to questions related to contributing factors are defined as the difference between the percentage of banks reporting that the given factor contributed to a tightening and the percentage reporting that it contributed to an easing. “Cost of funds and balance sheet constraints” is the unweighted average of “costs related to capital position”, “access to market financing” and “liquidity position”; “risk perceptions” is the unweighted average of “general economic situation and outlook”, “industry or firm-specific situation and outlook/borrower’s creditworthiness” and “risk related to the collateral demanded”; “competition” is the unweighted average of “competition from other banks”, “competition from non-banks” and “competition from market financing”. The latest observations are for Q1 2020. Our monetary policy measures, together with the contribution from the announcement of public credit guarantees in many countries and other direct and indirect support for firms and households, are contributing to the protection of bank-based credit flows. Banks have indicated that TLTRO III is having a net easing impact on the terms and conditions offered to borrowers and a positive net impact on their lending volumes, particularly on their expected lending volumes over the next six months (Chart 17).