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ECB's larger-than-expected QE programme welcomed by markets

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The ECB has announced the details of a €1.1trn quantitative easing programme, with 20% of the risk of default being shared across the euro-zone member states.

Speaking in Frankfurt, ECB president Mario Draghi confirmed the central bank would start a monthly €60bn programme in March, running at least until September 2016.

He said the asset purchasing, which would be conducted by the national central banks but coordinated by Frankfurt, was required to ensure the single currency’s inflation would run “below but closer to 2%”.

When later asked to clarify the length of the ECB’s intervention, Draghi stressed that the programme would only continue for as long until a “sustained adjustment in the path of inflation” had occurred.

The launch of QE became necessary as a result of the recent fall in oil prices, but also due to the decline in headline inflation figures across the euro-zone, which has seen a number of member states – notably Spain – see the onset of deflation.

Reaction in the market was subdued. The German 10-year bund yield fell back, after rising during the days leading up to the decision, and the euro weakened against the US dollar, again after strengthening over recent days.

Investors also bought gold, sending its back above $1,300/oz during Draghi’s press conference.

APG, asset manager to the largest European pension fund ABP, said the announcement had met its expectations.

The manager added that it had factored the possible announcement into its scenarios for its investment strategies and that its investment portfolio was constructed in such a way that it could cope with the effects of such a decision.

Others welcomed the size of the asset purchase, which was above the €50bn levels leaked to the market in advance.

Yoram Lustig, lead fund manager at AXA Investment Managers, questioned whether the leaks had stolen Draghi’s thunder.

“I think it was a staged leak to remove the suspense and set the stage,” he said. “Draghi isn’t interested in a thriller – he wants to calm the markets and meet or exceed expectations that he created.”

According to Draghi, 20% of the risk would be shared among member states – with 12% of the risk being met by individual member states and a further 8% by the ECB itself.

The Italian central banker expressed some surprise during the press conference announcing the move that risk sharing had become almost the most important single issue behind QE, and said it should not be the case.

He stressed that the “single-ness” of monetary policy remained in place, despite individual member states’ central banks assuming responsibility for putting in place the policy.

In instances where QE developed bubbles in individual markets, Draghi said these would need to be addressed through local instruments, not monetary policy. 

“What monetary policy can do is create the basis for growth,” he said. “But for growth you need investment.”

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