On Thursday 26 October, the governors of the European Central bank (ECB) decided to extend the programme for the mass buyback of mainly public securities (quantitative easing or QE) until the end of September 2018 at the earliest, in a scaled-back form.
On account of economic recovery which is strengthening, albeit not enough to trigger a swift return of inflation to a level close to below 2%, the Central Bank has made four main decisions, announced in the following order by its president, Mario Draghi:
(1) The principal interest rates remain unchanged (0.00% for main refinancing operations, 0.25% for the marginal loan facility, -0.40% for the deposit facility) over a period to extend beyond that of the QE operation;
(2) From January 2018, the pace of the mass buyback of securities will drop from €60 to €30 billion until the end of September 2018 or beyond, if the inflation trajectory is not in line with the mission of the ECB, which stands ready under all circumstances to amend the scope and duration of the QE operation;
(3) The ECB and the national central banks will continue to reinvest the principal payments from maturing securities purchased under the QE programme for an extended period of time after the end of the operation;
(4) The main refinancing operations as fixed-rate tender procedures will continue for as long as necessary and at least until 2019.
We need to “recalibrate” our accommodative monetary policy, Draghi told press, stressing the need to be “patient, prudent and persistent”. He said that the decisions made in Frankfurt reflect the balance between increased trust in the eurozone economy and the need to maintain injections of liquidity onto the markets, as inflation cannot sell-sustain through economic growth.
The former governor of the Bank of Italy went on to say that although inflation will rise gradually in the medium term, it will drop slightly going into 2018, due amongst other things to the fluctuation in energy prices. In September, inflation stood at 1.5% in the eurozone.
When asked for details of the discussions at the Governing Council, the ECB president acknowledged that the decision on QE had not been unanimous. He said that there were differences of opinion in particular over whether there should be an end date for the operation. However, he also noted an overall positive atmosphere due to the favourable economic signals that have materialised due to the dynamism of the financial markets, a drop in unemployment and an increase in both consumption and private investment.
On the reinvestment of the amounts earned from the maturity of the securities acquired under QE, Draghi reported a stock of considerable size. According to the vice-president of the ECB, Vítor Constâncio, there are several billion euros on average that will continue to be fed back into the market each month to stimulate the eurozone economy.
In a written question to the ECB, 24 Italian S&D members criticised the ECB's purchase of €125 million worth of bonds in Novomatic, a giant in the gaming industry. (Original version in French by Mathieu Bion)