22nd January 2015
The European Central Bank (ECB) has stepped up its battle to get the eurozone back on its feet by today announcing a massive quantitative easing (QE) programme.
As had been widely anticipated, ECB president Mario Draghi confirmed today that the Bank will inject billions into the region’s embattled economy.
The ECB said that from March, it will buy government bonds worth some €60bn per month – a figure higher than anticipated – until at least the end of September next year.
The Bank also announced today that the interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility will remain unchanged at 0.05%, 0.30% and -0.20% respectively.
Until now, unlike the US, UK and Japan, the ECB has until today resisted kick-starting a QE strategy.
However the news that the region had slipped into deflation once again during December seemingly left the Bank with little choice but to turn on the fiscal taps.
During the month, chiefly on the back of the steep collapse in the price of oil, the cost of living across the currency bloc fell into negative territory collapsing to -0.2 per cent from the previous month’s 0.3%.
Draghi, who back in July 2012 said he would do “whatever it takes” to rescue the region, declared: “Today’s measures will decisively underpin the firm anchoring of medium to long term inflation expectations.”
Commenting on the ECB’s salvo, Adrian Lowcock, head of investing at Axa Wealth said: “Stockmarkets have been rising in anticipation that the European Central Bank will start full quantitative easing. QE has been credited with supporting equity markets particularly in the US and UK following the financial crisis and the same is expected in Europe.
“However, markets have been volatile following QE and confidence is critical. The long-term beneficiaries of QE in Europe are difficult to predict but generally equities are expected to benefit particularly in Europe and the UK. In the short term we may well see a little profit taking following the announcement as investors digest the news.”