ECB QE programme ‘won’t distort market’

European Central Bank executive board member Benoit Coeure said bond purchases under the bank’s quantitative easing programme will aim to match the existing maturity profile of the market.

“In terms of the maturity allocation within a given sovereign bond universe, it will be broadly based on market outstandings,” Mr Coeure told reporters at an event in Budapest yesterday. “There is very little leeway for discussion or readjustment,” and “we want to create as little market distortion as possible,” he said.

ECB president Mario Draghi surprised economists and investors in January with a €1.1 trillion bond-purchase plan that was twice as big as forecast, although many details about its execution remain unknown. The ECB has only said it will buy bonds with maturities between two and 30 years, determine purchase amounts based on the size of individual economies, and set limits on how much of each country’s debt can be acquired.

Mr Coeure suggested policymakers will take until the next policy meeting, which is scheduled for March 5, to finish the fine print of the programme.

“We are going to start buying bonds right after the next Governing Council in March, meaning in the first days of March, in any case in the first fortnight of March.”

Ewald Nowotny, governor of Austria’s central bank, said at the same event that “there are now discussions about the technical implementation in the committees concerned”.

Mr Coeure said the programme is “open ended.” It will continue until inflation data show “sustained convergence” toward the ECB’s goal of just under 2%, and its effects will be assessed over time, he said. The ECB set a preliminary end date of September 2016, depending on incoming data.

“We don’t expect any immediate impact, and this is exactly the reason we intend to do it over 19 months,” Mr Coeure said. “We’re not going to make decisions on one number, on what happens in a single month.”

Mr Nowotny said the “first indications” about the impact of QE should be available by summer. In addition, the effect of the sharp decline in oil costs on inflation will become weaker after the first half of this year. “I do not foresee a deflationary perspective for the year as such. The forecast of the ECB for 2015 is not for disinflation.”

Prices in the 19-nation currency bloc fell an annual 0.6% in January, matching the biggest drop on record. In December, the ECB projected inflation of 0.7% this year, while professional forecasters surveyed by the central bank predict an average rate of 0.3%.

Governing council member Bostjan Jazbec, who also attended the Budapest conference, said monetary policy can be effective in providing liquidity, but “if other policies aren’t present, this is no way to go”.

* Bloomberg

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