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ECB committed to full QE program, sees stronger recovery

EconomyApr 15, 2015 10:00AM ET
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© Reuters. The famous skyline with its banking district and the new headquarter of the European Central Bank (ECB) is pictured in Frankfurt

By John O'Donnell and Marc Jones

FRANKFURT (Reuters) - The European Central Bank has no plans to curb or curtail its money-printing program although it expects euro zone economic recovery to broaden and strengthen.

Last month the ECB embarked on an asset-buying program with 60 billion euros a month of news money, which it has said will last until at least September 2016.

"Our focus will be on the full implementation of our monetary policy measures," ECB President Mario Draghi said on Wednesday.

"Purchases are intended to run until the end of September 2016 and, in any case, until we see a sustained adjustment in the path of inflation that is consistent with our aim of achieving inflation rates below, but close to, 2 percent over the medium term."

At the last count, euro zone inflation was running at -0.1 percent.

Draghi said he was surprised at speculation about exiting the program early since it was only a month old.

His news conference was disrupted when a woman in a black T-shirt jumped on the podium, shouting: "End the ECB dictatorship."

Earlier, the ECB left interest rates at record lows as its bond-buying scheme shows early signs of perking up the region's economy.

The main refinancing rate, which determines the cost of credit, is now just 0.05 percent, while the ECB's deposit rate, which means banks pay to park funds at the central bank and has the most influence on market rates, is -0.2 percent.


Draghi said help for cash-strapped Greece was firmly in the hands of the Greek government, which has yet to produce a program of economic reforms that is acceptable to its creditors.

ECB policymakers sanctioned further Emergency Lending Assistance for Greece's banks up to 74 billion euros, a banking source said on Tuesday, a reminder of the dire financial straits that the country is in.

"We approved ELA and we'll continue to do so, extend the liquidity to the Greek banks while they are solvent and they have adequate collateral," Draghi said, adding that there was no end date for emergency assistance.

Time is running out for Athens to improve a package of reforms required for the release of loans that it requires to stay afloat.

Were Greece, first bailed out in 2010 and again two years later, ultimately to tumble out of the euro, it would deal a blow to the credibility of the currency union.

For now though, the 1 trillion-euro-plus money printing scheme to buy chiefly government bonds is underpinning confidence.

"Through these measures we will contribute to a further improvement in the economic outlook, a reduction in economic slack and a recovery in money and credit growth," Draghi said.

"We expect the economic recovery to broaden and strengthen gradually."

The QE program has already prompted a rise in the value of bonds and investors are questioning whether it could become too costly for the ECB to buy sufficient quantities in top-rated countries such as Germany.

Draghi said there were plenty of bonds to buy. "We don't see any problems," he said. "Our program is flexible enough in any event to be adjusted if circumstances were to change."

He said the ECB would not lower its -0.2 percent deposit rate although it will not buy any bonds which yield less than that.

The ECB meeting was held a day early to allow Draghi to join finance ministers and central bankers from the Group of 20 top economies at the International Monetary Fund's Spring meeting in Washington.

In its World Economic Outlook on Tuesday, the IMF raised growth expectations for all the major economies in the bloc.

($1 = 0.9389 euros)

ECB committed to full QE program, sees stronger recovery

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