ECB deploys quantitative easing against deflation


AFP

FRANKFURT/DAVOS — The European Central Bank (ECB) on Thursday unveiled plans for a massive program of bond purchases to avert the threat of deflation in the euro area. After the ECB held its key interest rates at their current all-time lows at its first policy meeting of 2015, central bank chief Mario Draghi said a program would be launched to buy 60 billion euros of private and public bonds per month starting in March.

��The combined monthly purchases of public and private sector securities will amount to 60 billion euros (US$70 billion). They are intended to be carried out until end-September 2016 and will in any case be conducted until we see a sustained adjustment in the path of inflation,�� Draghi told a news conference.

A ��large majority�� of the European central bank’s governing council was in favor of an immediate launch of bond purchases to avert deflation, ECB chief Mario Draghi said Thursday. The 25-strong body was ��unanimous�� on the principle that such a program was a valid monetary policy tool, Draghi told a news conference after announcing that the ECB planned to buy 60 billion euros (US$70 billion) of bonds per month to boost inflation. And a ��large majority�� was in favor of taking such measures ��now,�� he added. Critics had expressed concern that European taxpayers would have to foot the bill of such a program, known as quantitative easing (QE), if any one country defaulted on its debt. But the plan had been designed so that only 20 percent of those risks would be shared, with the other 80 percent to be shouldered by the national central banks of the countries concerned, Draghi said. QE is regarded as the central bank’s most powerful tool yet to ward off deflation in the single currency area, where consumer prices actually started to fall in December.

Action Shouldn’t Divert Europe from Reforms: Merkel German Chancellor Angela Merkel told the Davos forum Thursday that any action by the European Central Bank to boost the eurozone’s struggling economy should not ease the pressure on governments to enact reforms. Merkel, who addressed the World Economic Forum of business and political elites minutes before the ECB unveiled its 60-billion-euro (US$70 billion) bond purchase program, insisted that governments must seize the opportunity to ��do your homework as regards your fiscal consolidation.�� ��No matter what sort of decision the ECB will take, we should not become diverted from the fact that we as politicians need to put a framework for recovery in place,�� Merkel told the World Economic Forum in Davos. ��Europe continues to be confronted by great challenges. We have often talked about the debt crisis … we have this somewhat under control but we are not out of the woods yet,�� added the chancellor, a regular Davos visitor. The European Central Bank has come to the rescue of the eurozone on several occasions since Greece nearly dragged down the bloc with its debt, with the bank unleashing an arsenal of unconventional measures since late 2011 to calm jittery markets. Merkel told governments that the breathing room given by the ECB should not be wasted, warning that one day, the stimulus measures would have to be removed.

Stocks Rally while Euro Falls After the ECB announcement, Frankfurt’s DAX 30 rose 0.47 percent to 10,347 points and the CAC-40 in Paris climbed 0.76 percent compared with Wednesday’s close to 4,518.79. The Milan stock market shot up 1.75 percent and Madrid jumped 1.56 percent in value. In Britain, which is not part of the eurozone, the FTSE 100 index of top companies climbed 0.39 percent to 6,754.21 points. In foreign currency trading, the euro sank against the dollar to US$1.1483 in afternoon London deals following the ECB announcement, compared with US$1.1620 beforehand.