ECB unveils trillion euro QE programme

The central bank has surprised markets with a bigger stimulus than expected.

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By :  ,  Financial Analyst

The European Central Bank (ECB) today (January 22nd) has announced it is launching a quantitative easing (QE) programme, injecting €1.1 trillion to revive the sluggish eurozone economy.

From March 2015, it will buy bonds worth €60 billion (£46 billion) per month until the end of September 2016 and possibly longer. This is more than what the €50 billion a month the markets anticipated.

The ECB will be purchasing euro-denominated investment grade securities issued by euro-area governments and agencies and European institutions.

However, in the case of countries under an EU and International Monetary Fund adjustment programme such as Greece, "some additional eligibility criteria" will apply.

Furthermore, in what is viewed as a concession to the Germans, the ECB promised that national central banks would bear most of the risk of their governments defaulting, with only 20 per cent of the new bond-purchases subject to risk-sharing. The ECB also said eurozone interest rates will remain at the record low of 0.05 per cent.

The eurozone economy registered weak growth in December, according to the Markit/CIPS survey. The region's composite purchasing managers' index (PMI) fell to 51.4 last month from an earlier estimate of 51.7. However, this was better than November's reading of 51.1.

Markit said its latest PMI survey suggested the eurozone economy grew by just 0.1 per cent in the last three months of 2014.

Persistently low inflation since the start of last year has raised the threat of deflation. The problem has been exacerbated since the summer by the falling price of oil.

ECB president Mario Draghi said the programme had been taken due to inflation dynamics being "weaker than expected," with money and credit developments being subdued.

He added that QE would be conducted until the EU can see "a sustained adjustment in the path of inflation".

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