The European Central Bank (ECB) introduced the latest round of measures to revive the lifeless eurozone economy. ECB President Mario Draghi announced Thursday it will acquire 60 billion euros ($69 billion) each month in government bonds in order to suppress interest rates and inject cash into the banking system.
The purpose of the ECB move is to hold down record-low interest rates – the deposit rate remained this week at minus 0.2 percent and the marginal lending rate at 0.3 percent – increasing the coffers of financial institutions and encourage businesses and consumers to borrow more. A greater amount of money within banks would enhance the availability of credit.
All of these would be ingredients to resuscitate the weak eurozone economy.
Draghi’s quantitative easing initiative is very similar to what had already occurred in the United States, the United Kingdom and Japan, all three countries that have attempted to stave off deflation threats and boost growth.
Ostensibly, there is no end date for the ECB’s QE and could stretch to as far as 2016. In total, the ECB will generate about 720 billion euros in freshly created money over the next 12 months.
“Inflation dynamics have continued to be weaker than expected,” Draghi told reporters during a scheduled press conference. “While the sharp fall in oil prices over recent months remains the dominant factor driving current headline inflation, the potential for second-round effects on wage and price-setting has increased and could adversely affect medium-term price developments.”
On this news, European stocks quickly rallied. The pan-European FTSEurofirst 300 traded over one percent higher, while the German DAX is up 0.40 percent. Also, the IBEX 35 Index is up more than one percent. The euro dipped to 1.1472 against the U.S. dollar.
It should be noted that sources close to the situation told media outlets earlier this week that the size of the stimulus measure would be roughly 50 billion euros per month, while others averred it would be a grand total of 500 billion euros.
