Today’s ECB monetary policy decision on additional asset purchases was taken to counter two unfavourable developments of danger and risks of too prolonged a period of low inflation.
“The ECB Governing Council decision will support forward guidance on the key ECB interest rates. A price stability defined as keeping inflation rate close but below 2%. The Governing Council decisions are meant to affect monetary and financial conditions across the whole euro area” says the press statement to the conference (with Q&A) by Mario Draghi, President of European Central Bank on 22 January.
Such programs, known as quantitative easing, can help lower long-term interest rates and bolster financial markets, encouraging spending and business investment. In line with forward guidance, ECB decided to keep the key ECB interest rates unchanged. The sizeable increase in ECB´s balance sheet will further ease the monetary policy stance. In particular, financing conditions for firms and households in the euro area will continue to improve. Together, these factors should strengthen demand, increase capacity utilisation and support money and credit growth, and thereby contribute to a return of inflation rates towards 2%.
Furthermore, demand for exports should benefit from the global recovery. Confidence will improve though the year, especially with strong growth in the U.S. ECB´s decision on asset purchases are intended — to be carried out until the end of September 2016 and will be conducted until the council see a sustained adjustment in the path of inflation.
With regard to the sharing of hypothetical losses, the Governing Council decided that purchases of securities of European institutions (which will be 12% of the additional asset purchases, and which will be purchased by NCBs) will be subject to loss sharing, according to ECB´s Introductory statement to the press conference (with Q&A).
The rest of the NCBs’ additional asset purchases will not be subject to loss sharing. The ECB will hold 8% of the additional asset purchases. This implies that 20% of the additional asset purchases will be subject to a regime of risk sharing.
Separate press releases with more detailed information on the expanded asset purchase programme and the pricing of the targeted longer-term refinancing operations (TLTROs) will be published this afternoon.