The European Central Bank (ECB) is set to pump €60bn a month into the eurozone economy in an attempt to stave off a recession.
ECB president Mario Draghi today announced a larger than expected quantitative easing program for the eurozone.
Starting in March of this year, the European Central Bank will buy €60bn a month until the end of 2016. Bonds included will be investment grade corporate debt and eurozone government bonds.
Mr Draghi said the ECB would continue to buy up bonds until it sees a “sustained adjustment” in the level of inflation, getting it back up close to its 2 per cent target; the region entered into deflation in December.
He added the ECB and national central banks will not buy more than a third of a country’s debt issuance and will not purchase more than 25 per cent of any given bond issue.
National central banks will assume most of the responsibility for losses from any default or restructuring of their national debt, although the ECB will shoulder some of the risk.
The value of the euro against the dollar initially plummeted following the announcement but has rebounded slightly as traders sought to work out the full implications of the plan.
Equity markets in the UK and Europe reacted in a similar way, initially rallying before falling back as investors digested Mr Draghi’s comments.
Nancy Curtin, chief investment officer of Close Brothers Asset Management, said QE was “set to start with a bang rather a whimper, a fact that will be well received by investors”.
She said: “The eurozone was in need of shock and awe tactics from the ECB to combat the prospect of a prolonged period of deflation, and Draghi has finally delivered on his promise to do ‘whatever it takes’.”