The European Central Bank will buy assets for at least two years to boost inflation and economic growth in the euro area.
The Frankfurt-based central bank will start buying covered bonds this month and asset-backed securities by the end of the year, ECB President Mario Draghi said Thursday at a press conference in Naples, Italy, after leaving interest rates unchanged at record lows. “These purchases will have a sizable impact on the balance sheet,” he said, without specifying a volume.
While Draghi reiterated that the measures will help steer the ECB’s balance sheet back to levels seen at the start of 2012, an increase of as much as 1 trillion euros ($1.3 trillion) in assets, he also said the size of the balance sheet is an instrument rather than a goal. Since June, officials have cut interest rates twice and announced a range of measures such as loans to banks aimed at boosting credit to the real economy.
German 10-year yields rose one basis point to 0.91 percent, after touching 0.896 percent Wednesday the lowest since Sept. 2. The yield on Greek 10-year debt dropped 10 basis points to 6.44 percent. The euro was 0.3 percent higher at $1.2661 at 3:43 p.m. Frankfurt time.
Policy makers are unanimous in embarking on further policy measures if necessary, Draghi said.
The ECB will buy assets in some nations that have a debt rating below BBB minus, he said. Caveats will be included so that purchases in countries with a rating below that threshold will be equivalent in risk to assets bought elsewhere.
“We want to be as inclusive as possible but with prudence,” he said.
Inflation slowed to 0.3 percent last month, the least in almost five years, and the central bank’s preferred measure of medium-term inflation expectations has extended its decline. Economic growth in the currency bloc came to a halt in the second quarter, increasing the risk that the euro area will fall into recession for the third time since 2008.
Factories cut prices in September by the most in more than a year and manufacturing shrank in Germany, the region’s largest economy, as well as in France, Austria and Greece.
“The recent weakening in the euro area’s growth momentum, alongside with heightened geopolitical risks, could dampen confidence and, in particular, private investment,” Draghi said. “The economy is still fundamentally weak.”
The ECB’s 24-member Governing Council left its benchmark interest rate at 0.05 percent Thursday. The decision was predicted by all 60 economists in a Bloomberg News survey. The deposit rate and the marginal lending rate remained at minus 0.2 percent and 0.3 percent, respectively.
Draghi reiterated Thursday that while the ECB stands ready to act again, monetary policy alone can’t solve the euro-area’s economic malaise alone.
“Other policy areas need to contribute decisively,” he said. “Insufficient progress in structural reforms in euro area countries constitutes a key downward risk to the economic outlook.” [Bloomberg]