The European Central Bank is preparing possible measures to provide liquidity to businesses hit by the economic fallout of the coronavirus outbreak, three sources familiar with the discussion told Reuters.
With the virus spreading around the globe, central banks are coming under pressure to support growth, which is already suffering as a result of travel restrictions, weakening demand, supply chain disruptions and a sharp market sell-off.
The most prominent measure under discussion is a targeted longer-term refinancing operation (TLTRO) directed at small- and medium-sized enterprises in the 19-country euro zone, who may be hit hardest by the downturn.
The sources said no decision on the scheme is imminent as preparatory work would take time.
An ECB spokesman declined to comment. ECB President Christine Lagarde said late on Monday the bank is ready to take "appropriate and targeted" measures.
The previous round of such loans were given to banks at the ECB's minus 0.5percent deposit rate, essentially granting them a rebate if they met their benchmarks to loan the cash out.
The simplest way to target the cash in a new scheme would be if benchmarks were set so the money was given to smaller firms, whose access to credit is generally more restricted than their bigger peers', making them more vulnerable to any slowdown.
The sources said that while the ECB has done preparatory work for such a scheme in the past, plans would need to be scrutinized and discussed by the policy-setting Governing Council before they can be implemented.
"The facility could have specific features, including a shorter maturity (up to 12 months), a fixed rate equal to the ECB's deposit rate (if not lower), and a maximum allowance that would be a function of each individual bank's exposure to SME lending," Pictet Wealth Management Strategist Frederik Ducrozet said.
Larger firms could also benefit from the lending scheme, some of the sources said, although they are normally better-funded and already enjoy the benefit of the ECB's corporate sector bond purchases.
A fourth source added that some Governing Council members still see the coronavirus outbreak as short-term issue and largely outside the scope of monetary policy. ECB policymakers have already said governments should lead the response to the coronavirus outbreak via fiscal policy.
The fourth source said that even after Lagarde's statement on Monday, policymakers maintain that the ECB should not rush to act and its moves should be measured, keeping pressure on governments.