Brussels, 03/09/2015 (Agence Europe) - The ECB is standing by to beef up and/or extend the quantitative easing programme in the event of any prolonged slippage of the inflation trajectory in the medium term.
At its first meeting since the summer break, the Governing Council carried out an analysis of the first six months of the implementation of the QE programme, which consists of buying back €60 billion worth of public and private bonds every month until September 2016 in order to get inflation moving upwards. “The implementation of our asset purchase programme continues to proceed smoothly”, the ECB President said on Thursday 3 September, which was incidentally his 68th birthday.
In order to ensure a “full” application of QE, the ECB has nonetheless decided to increase the upper limit on the assets which can be bought by a single entity by “25% to 33%”, on condition that this would “not create a situation whereby the euro system would have blocking minority power”, he added. He went on to say that the Governing Council had not discussed the issue of extending the range of assets the ECB could buy back in the framework of the QE exercise.
Under the quantitative easing programme launched in March (see EUROPE 11268 and 11236), the ECB had bought back more than €289.5 billion worth of public debt instruments as of 28 August.
Announcing a downwards revision of its growth and inflation forecasts compared to June, Draghi stressed that the ECB stood ready to act, for instance by reinforcing its non-conventional monetary policy instruments. “The QE is flexible enough in terms of size, composition and the term of the programme”, he said. He declined to state the options which could be brought in first: “We have not talked about that. We are not yet there”. QE will certainly be in place until 26 September at least and beyond, if necessary.
On the economic situation, the ECB is of the opinion that recovery is continuing in the eurozone, “albeit at a far slower pace”. The deceleration in growth observed in the emerging countries, principally China, is the major downwards risk. According to the European institution, GDP in the eurozone is expected to grow as follows: 1.4% in 2015, 1.7% in 2016 and 1.8% in 2017. Noting that continuous growth in credit flows favours economic growth, Draghi repeated his calls on the countries of the eurozone to continue budgetary cleansing, structural reforms and investment to ensure that their economies are better able to ride out external shocks.
On inflation, which has stagnated at 0.2% in the eurozone since June, the forecasts have also been reduced, due to a further drop in oil prices. The Frankfurt-based Institute now predicts an annual increase in prices of 0.1% in 2015, 1.1% in 2016 and 1.7% in 2017. “Inflation will remain very low in the short term”, Draghi confirmed. He did not rule out the possibility that inflation would fall back to negative figures, as the latest ECB forecasts are based on data which predate the steep drops on the financial markets in August, due to concerns regarding the Chinese economy.
Here again, the ECB stands ready to act if the impact of the drop in oil prices, which it hopes will be “temporary”, should continue longer than expected. The decision on interest rates to be taken by the American FED could influence the Governing Council's assessment, when the body meets for the next time on Thursday 22 October.
Greece. When asked about the third Greek bailout plan, which was concluded in August, the former Governor of Banca d'Italia acknowledged that the ECB had opposed any bail-in of Greek savers below a threshold of €100,000. A measure of this kind would have been “counter-productive and harmful for the Greek economy” and would have “hit thousands of savers and SMEs”, he stressed, noting that the restrictions on movements of capital have still not been fully lifted in Greece. He welcomed the fact that this position had ultimately been adopted by the Eurogroup.
Draghi also said that the ECB needed more time to decide whether to include the purchase of Greek securities in the quantitative easing programme, as such purchases cannot take place while the review is still ongoing. This is a U-turn from what he had to say on the subject in July of this year (see EUROPE 11361).
Lastly, the ECB has made no changes to the interest rates of principal refinancing operations (0.05%), the marginal loan facility (0.3%) and the deposit facility (-0.2%). (Mathieu Bion)