ECB resets QE limits to revive economies

Weak outlook prompts rejig

EUROPEAN Central Bank (ECB) president Mario Draghi yesterday unveiled a revamp of quantitative easing (QE) to allow for more purchases of each euro member’s debt as the weaker global outlook prompted a wholesale reduction of officials’ economic forecasts to 2017.

Draghi said in Frankfurt yesterday that the governing council had set a potential purchase limit of 33 percent of any given bond, from 25 percent previously. The euro slid to a two-week low as Draghi said the emerging market rout threatened global expansion and that consumer prices might barely grow this year.

Weaker recovery

“The information available indicates a continued, though somewhat weaker, economic recovery and a slower increase in inflation rates compared with earlier expectations.

“Taking into account the most recent developments in oil prices and recent exchange rates, there are downside risks to the inflation forecast,” Draghi said.

The move to reset the ECB’s stimulus programme after a six-month review, which will be subject to conditions for each country, gives more flexibility for officials as they prepare to continue bond purchases at least until September 2016.

Weaker commodity prices, slowing trade and volatility in global equities have fuelled speculation that more stimulus is on the way.

The increase in the limit for purchases of each bond issue is subject to “a case-by-case verification” of the circumstances involved. It should not create a situation whereby the ECB would have blocking minority power, in which case the issue share limit would remain at 25 percent, Draghi said.

Stimulus was programmed to continue “until the end of September 2016, or beyond, if necessary”, Draghi said, in a tweak to language that hints more strongly than before on officials’ readiness to expand purchases.

The euro fell 0.9 percent to $1.1129 (R16.84) at 2.29pm in London and touched $1.1107, its weakest level since August 20.

“Draghi is assuring very clearly that if the turmoil gets any worse, the ECB would do all it takes to keep the recovery on track,” said Holger Schmieding, the chief economist at Berenberg Bank in London. “It would not take much further to elicit the ECB response.”

The ECB cut its outlook for inflation and growth in each year to 2017.

Officials see consumer prices barely growing this year with an increase averaging 0.1 percent. Inflation would then accelerate to 1.1 percent in 2016 and 1.7 percent the next year, Draghi said. – Bloomberg

PHOTO: REUTERS European Central Bank president Mario Draghi (right) and vice-president Vitor Constancio address a news conference at the ECB headquarters in Frankfurt, Germany, yesterday. The bank said it was holding its 60bn-a-month asset purchase limit unchanged.