Thursday 19 September 2019

QE was at times 'only driver of recovery' - Draghi

Euro falls as ECB formally ends its €2.6trn quantitative easing policy

It hasn’t gone away: Although President Mario Draghi said QE is over, the ECB will continue to provide stimulus to the eurozone
It hasn’t gone away: Although President Mario Draghi said QE is over, the ECB will continue to provide stimulus to the eurozone
Donal O'Donovan

Donal O'Donovan

THE European Central Bank (ECB) will continue to feed financial stimulus into the eurozone economy, despite officially ending its vast post-crisis quantitative-easing scheme yesterday.

The ECB announced the formal end of QE, having pumped a massive €2.6trn into the economy in just four years, mostly by buying bonds.

The central bank indicated that interest rates will not rise quickly from current all-time lows however, amid a weakening growth outlook.

The ECB repeated its promise that rates would be kept at their current record lows at least through next summer and that it would keep the time horizon for reinvesting cash from maturing bonds open ended.

Those maturing bonds will add up to about €200bn next year.

"The Governing Council intends to continue reinvesting, in full, the principal payments from maturing securities purchased under [QE] for an extended period of time past the date when it starts raising the key ECB interest rates," the ECB said.

Asked for an assessment of how effective he thought QE had been in helping the eurozone to emerge from the 2007/08 financial crisis, ECB President Mario Draghi said that for some of the last four years QE had "been the only driver of this recovery".

Mr Draghi said the decision on reinvestments was unanimous.

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The ECB's main refinancing rate, which determines the cost of credit in the economy, remains at zero.

Its latest projections put eurozone growth at 1.9pc and 1.7pc for this year and next, respectively, each 10 basis points lower from the ECB's last forecasts in September.

It put 2018 inflation at 1.8pc - up from an earlier 1.7pc estimate - but saw it slightly lower next year than previously, at 1.6pc. The new forecasts, coupled with Mr Draghi's comment that the balance of risk was now tilted towards the downside, caused the euro to weaken.

Meanwhile, the Government plans to borrow between €14bn and €18bn next year, to repay outstanding debt as it falls due. The plans outlined by the National Treasury Management Agency (NTMA) are in line with the amount raised this year on the bond markets. The Government is forecasting a balanced budget next year, meaning it will not borrow for spending. That's the first time since the crash in 2008 that the State will not spend more than it takes in through taxation. However, with a massive national debt to manage, NTMA will continue to issue new bonds as existing debt matures. The NTMA will have a cash balance of €13bn at the start of 2019, with €15bn of bonds falling due over the following 12 months.

The NTMA intends to hold at least one syndicated bond deal during the year - a practice whereby debt is issued to lenders through intermediary banks, as well as regular bond auctions.

Additional reporting Reuters

Irish Independent

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