Date
18 December 2017
Market players want to know the final details of the program after the ECB board led by bank president Mario Draghi meets Thursday. Photo: Bloomberg
Market players want to know the final details of the program after the ECB board led by bank president Mario Draghi meets Thursday. Photo: Bloomberg

ECB eyes 50 bln euro bond purchases per month

The European Central Bank’s executive board has proposed to buy about 50 billion euros (US$58 billion) of bonds every month for at least one year in an effort to bolster the eurozone’s flagging economy and perk up inflation, the Wall Street Journal reported.

The 25-member ECB governing council will meet on Thursday, and the final number and other details of the bond-buying program could still change, the newspaper said.

“More details are needed from [Thursday’s] official announcement” and the press conference to be conducted by ECB president Mario Draghi, said James Kwok, head of currency management at Amundi, which has US$1 trillion of assets under management.

Market players want to know whether the bond purchases will be spread across central banks in the eurozone or if the ECB will put the risk for each country’s bonds on its national central bank. This means that Germany’s Bundesbank would hold German bonds and France’s central bank would assume the risk of French debt.

Such an approach could ease concerns in Germany that its taxpayers would be asked to assume other euro members’ debts.

Still, the reported size of the bond-buying proposal indicates the thinking in the ECB that any action must be aggressive enough to be able to shore up the eurozone economy.

Consumer prices fell 0.2 percent in December on an annual basis, well below the bank’s target, raising the risk of deflation. The unemployment rate was 11.5 percent in November, far higher than in the United States and Britain.

Other major central banks including the Federal Reserve, Bank of England and Bank of Japan relied heavily on quantitative easing to reduce long-term interest rates following the global financial crisis. 

But the ECB has largely refrained from this measure in recent years, relying instead on interest-rate cuts and loans to banks in a bid to bolster the economy, the report said.

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CG

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