ECB president Mario Draghi has announced that the central bank will launch an expanded quantiative easing (QE) programme including monthly sovereign debt purchases of €60bn as of March 2015 whilst leaving interest rates for main refinancing operations unchanged.
Speaking at a press conference following the monthly ECB Governing council meeting in Frankfurt, Draghi confirmed that sovereign bond purchases will be carried out at least until the end of September 2016, purchases will continue “until a sustained adjustment of inflation rates has been achieved.”
A QE programme lasting until September 2016 would entail more than €1.1trn worth of sovereign bond purchases.
Commenting on the possible impact on pricing sovereign debt, he stressed: “We won’t buy more than 25% of each issue and not more than 33% of each issuers debt.”
The ECB will hold 8% of these additional asset purchases, 20% of the additional asset purchases will be subject to a regime of risk sharing.
The Governing Council also decided to change the pricing of the six remaining targeted longer-term refinancing operations (TLTROs), with the interest rates for future TLTRO operations equal to main refinancing operation rates prevailing at the time.
Justifying the decision. Draghi commented: “Today’s monetary policy decision on additional asset purchases was taken to counter two unfavourable developments. First, inflation dynamics have continued to be weaker than expected. While the sharp fall in oil prices over recent months remains the dominant factor driving current headline inflation, the potential for second-round effects on wage and price-setting has increased and could adversely affect medium-term price developments.”
He adds: “Second, while the monetary policy measures adopted between June and September last year resulted in a material improvement in terms of financial market prices, this was not the case for the quantitative results. As a consequence, the prevailing degree of monetary accommodation was insufficient to adequately address heightened risks of too prolonged a period of low inflation.”