Sunday 22 October 2017

Quantitative easing will be only 'moderately positive' - Standard & Poor's

ECB President Mario Draghi. Reuters
ECB President Mario Draghi. Reuters
Colm Kelpie

Colm Kelpie

The European Central Bank's quantitative easing (QE) programme will not be a game changer for Eurozone banks, Standard & Poor's has said.

The ratings giant said the overall effect of the landmark bond-purchasing programme launched by the Frankfurt-based ECB was likely to be only "moderately positive". The ECB took the ultimate policy leap last month by launching the scheme which will pump hundreds of billions in new money into a sagging Eurozone economy.

The ECB said it would purchase sovereign debt from next month until the end of September 2016, despite opposition from Germany's Bundesbank and concerns in Berlin that it could allow some countries to slacken economic reforms.

S&P said the effect of QE on each banking system will depend partly on the effect on the underlying economic growth trends in each country.

"Whether the ECB's QE programme ultimately delivers longer-lasting benefits for the Eurozone's banking systems will largely depend on whether the programme contributes to a sustainable economic recovery," S&P said in a note published yesterday.

"We expect QE to have a moderate effect on the Eurozone's economies by improving private-sector confidence and economic activity, and by increasing liquidity, which should exert downward pressures on funding costs.

"This could accelerate the decline in countries where these costs are not already very low," S&P added.

The ratings agency said that In jurisdictions where there is still significant debt overhang or where there is a clear lack of credit demand, it does not expect QE to have much effect.

"Some of the excess cheap liquidity from QE could shift to equities or real estate, favouring asset price inflation in these markets, which in some economies could contribute to the build-up of imbalances," the note said.

"Similarly, investors' search for higher returns could lead to liquidity spill-over to economies outside the Eurozone, like emerging markets," the report added.

Irish Independent

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