ECB’s bond buying explained | FT Markets Description video: ► Subscribe to the Financial Times on YouTube: http://bit.ly/FTimeSubs\n\nECB’s plans to purchase private sector debt in focus\n\nThe ECB surprised investors with its unconventional methods of reinvigorating eurozone growth. Rochelle Toplensky, the […]
ECB’s bond buying explained | FT Markets
► Subscribe to the Financial Times on YouTube: http://bit.ly/FTimeSubs\n\nECB’s plans to purchase private sector debt in focus\n\nThe ECB surprised investors with its unconventional methods of reinvigorating eurozone growth. Rochelle Toplensky, the FT’s markets reporter, explains.\n\nFor more video content from the Financial Times, visit http://www.FT.com/video\n\nTwitter https://twitter.com/ftvideo\nFacebook https://www.facebook.com/financialtimes
ECB cuts key rate, resumes buying bonds
The European Central Bank (ECB) on Thursday announced a massive new bond buying program in an attempt to stimulate the eurozone economy.
President Mario Draghi announced that the ECB will cut its key deposit rate by 10 basis points to -0.5%, in line with expectations. The ECB currently expects interest rates to remain at or below their current level until it becomes clear that the inflation forecast «is steadily approaching a level close enough but below 2% within its forecast horizon, and such convergence remains».
The ECB also improved conditions on its long-term loans to banks and introduced a tiered deposit rate to help the banking system.
«The Governing Council expects (the bond purchase) to last as long as it takes to amplify the trade-off impact of its interest rates, and to end shortly before the ECB starts raising key interest rates», – said in a statement by the ECB. The central bank’s quantitative easing program implies spending € 20 billion a month to buy assets, if necessary.
Economists surveyed by Reuters expected a 10 basis point cut in the deposit rate, a tiered deposit rate to support banks, a € 30bn monthly bond purchase since October, and a renewed promise to keep rates low for longer..
Overall, markets have been anticipating some form of stimulus, although in recent weeks the hawks in the ECB’s governing board have taken steps to downplay the scope of the upcoming measures..
The slowdown in the eurozone economy, persisting low inflation and the trade war between the US and China indicate that the European regulator is forced to introduce stimulus programs.
Recently, economic data has not been promising, although purchasing managers’ indices (PMI) have shown some stabilization, despite weakness in the industry..