The European Central Bank will start buying securitized debt and covered bonds, potentially easing the flow of bank funding for the region’s faltering economy.
“The euro system will purchase a broad portfolio of simple and transparent securities,” President Mario Draghi said at a press conference in Frankfurt today after the ECB unexpectedly cut interest rates to record lows. This action together with already-announced long term loans “will have a sizable impact on our balance sheet,” he said. Agreement on the plan was not unanimous, he said.
In committing cash to the market for asset-backed securities, Draghi is making good on his pledge to help rekindle an asset class that can funnel loans to the real economy and ease funding conditions for the region’s banks. While the size of the plan wasn’t given, it probably doesn’t represent the kind of quantitative easing that could directly fend off the threat of deflation.
Euro-area inflation languished at 0.3 percent last month, far below the ECB’s 2 percent target. Draghi said details of the program will be announced after the October rate-setting meeting. He also said quantitative easing was discussed today.
“We took into account the overall subdued outlook for inflation, the weakening in the growth momentum in the recent past,” Draghi said. “The Governing Council sees the risks around the economic outlook on the downside.”
The ECB earlier reduced all three of its main interest rates by 10 basis points. The benchmark rate was lowered to 0.05 percent and the deposit rate is now minus 0.2 percent. The euro slid to a 14-month low against the dollar.
To contact the reporters on this story: Jeff Black in Frankfurt at jblack25@bloomberg.net; Alessandro Speciale in Frankfurt at aspeciale@bloomberg.net
To contact the editors responsible for this story: Emma Charlton at echarlton1@bloomberg.net Paul Gordon, Fergal O’Brien
