ECB extends asset-buying programme into 2017

The European Central Bank adjusted its asset purchase programme known as quantitative easing on Thursday, extending the scheme's duration into 2017 and agreeing to buy euro-denominated municipal and regional bonds, ECB president Mario Draghi said.

Purchases of mainly government bonds - at €60 billion a month - are now seen running until at least March 2017 instead of next September. Mr Draghi also said that proceeds from the various assets bought would be reinvested back into the scheme.

“We decided to extend the asset-purchase programme. The monthly purchases of €60 billion under the asset-purchase programme are now intended to run until the end of March 2017 or beyond if necessary and in any case until the Governing Council sees a sustained adjustment in the path of inflation consistent with its aim of achieving inflation below but close to 2 per cent over the medium term,” Mr Draghi said.

Yields

The purchases have pushed down yields and boosted lending, indicating that quantitative easing (QE) was working, even if only slowly and with a lag, supporting calls for more asset buys. But critics have said QE has done little for inflation so far, the ECB’s biggest worry, with headline figures hovering near zero and core inflation around 1 pe rcent, well short of the central bank’s target of nearly 2 per cent.

Earlier, the ECB cut its deposit rate as part of its latest effort to revive lending and inflation in the euro zone. As widely expected by analysts, the ECB cut its deposit facility to -0.3 per cent from -0.2 per cent, a move designed to stimulate lending by increasing the penalty on banks that leave their excess cash with the ECB.

The ECB’s main refinancing rate, which determines the cost of borrowing for banks at the ECB’s weekly auction, was left unchanged at 0.05 per cent, as was the marginal lending facility - or emergency overnight borrowing rate - at 0.3 per cent. Markets now turn their attention to ECB president Mario Draghi’s imminent news conference and whether the bank will make any adjustments to its €60 billion per month asset purchase programme.

Reuters