Mario Draghi aims to extend QE

Mario Draghi

With eurozone inflation stuck near zero for almost two years and Brexit now threatening to undercut the region’s recovery, economists see ECB president Mario Draghi as highly likely to lengthen quantitative easing for a second time.

That would take the asset-buying programme beyond its current end-date of March 2017 and above the target of €1.7 trillion.

More than 80% of economists in a Bloomberg survey expect such a decision, with a similar share predicting the ECB will tweak its purchasing rules to avoid running out of securities to buy. 

Almost half of respondents foresee action on Thursday, when the Governing Council sets policy in Frankfurt, with almost all the rest predicting an announcement at the October or December meetings.

Mr Draghi’s position is reminiscent of the one Ben Bernanke adopted in 2012 when the then-chair of the US Federal Reserve added his third installment of asset purchases, so-called QE3, and promised to keep going as long as necessary.

The ECB head repeatedly said officials will keep up their stimulus until they see a sustained adjustment in the path of inflation, and the signs are that will take more than another six months.

“Conditions to withdraw monetary stimulus will likely not be met next March,” said Kristian Toedtmann, an economist at DekaBank in Frankfurt. 

“There is no point in postponing this decision.”

Inflation in the eurozone was 0.2% in August, unchanged from July, and core prices slowed. 

Figures from IHS Markit published shwed a gauge of economic growth in the 19-nation bloc at its weakest in 19 months.

ECB executive board member Yves Mersch called the pace of the recovery “unsatisfactory” in a speech at the weekend in Cernobbio in Italy. 

Fresh ECB projections are scheduled to be released on Thursday, an event that has often underpinned a decision to change policy.

The more the ECB buys, the greater the risk that a scarcity of assets turns into a shortage. 

To avoid that, economists see it as almost inevitable a QE extension would have to be accompanied by a change in the central bank’s self-imposed rules on purchases. 

First among those tweaks would be to increase the maximum share of each bond issue that the ECB can buy, according to the survey.

Second would be to drop the rule that assets are ineligible if they have a yield below the deposit rate, currently minus 0.4%.


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