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Thursday, January 22, 2015

ECB Announces Quantitative Easing

The European Central Bank (ECB) has announced a full scale quantitative easing program designed to spur eurozone growth. Starting March 2015 the ECB will commence the combined monthly purchase of public and private sector securities amounting to 60 billion euros. The monthly purchases are set to continue until the end of September 2016, but the ECB press release notes that the purchases will be “conducted until we see a sustained adjustment in the path of inflation” consistent with their 2% inflation objective over the medium term.

The Eurosystem will purchase euro-denominated investment-grade securities issued by euro area governments and agencies and European institutions in the secondary market. Purchases of securities of European institutions (12% of asset purchases) will be subject to loss sharing. The ECB will hold 8% of the additional asset purchases, so a total of 20% of the asset purchases will be subject to risk sharing.

The decision to begin additional asset purchases was fueled by weaker than expected inflation. Sharp falling oil prices remains the key factor driving current inflation, but the ECB is concerned that the potential for second-round effects on wage and price-setting has increased and could adversely affect medium-term price developments. Furthermore, economic slack in the Eurozone remains a concern.

Read the ECB press release.

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