Stefan Riecher and Alessandro Speciale Frankfurt and Naples
THE EUROPEAN Central Bank (ECB) would buy assets for at least two years to boost inflation and economic growth in the euro area, president Mario Draghi said.
The Frankfurt-based central bank would start buying covered bonds this month and plans to purchase asset-backed securities starting this quarter, Draghi said yesterday at a press conference in Naples, Italy, after the ECB left interest rates unchanged at record lows. “These purchases will have a sizable impact on the balance sheet,” he said.
The purchase programme is part of an easing plan Draghi has said will steer the balance sheet back to levels seen at the start of 2012, signalling as much as e1 trillion (R14 trillion) in assets could be added. Since June the ECB has cut interest rates twice and announced a range of measures such as loans to banks aimed at boosting credit to the real economy.
German 10-year yields rose 2 basis points to 0.92 percent, after touching 0.896 percent on Wednesday, the lowest since September 2. The yield on Greek 10-year debt dropped 10 basis points to 6.39 percent.
The central bank would release further details of the asset purchase plan at 3.30pm local time, Draghi said. He did not provide investors with a size for the planned purchases.
He said policymakers were unanimous in embarking on further policy measures if necessary. The ECB would buy assets in nations with debt rated below BBB minus, with caveats, he said.
Inflation slowed to 0.3 percent last month, the least in almost five years, and the central bank’s preferred measure of medium-term inflation expectations has extended its fall. Economic growth in the currency bloc came to a halt in the second quarter, increasing the risk that the euro area will fall into recession for the third time since 2008.
Factories cut prices in September by the most in more than a year and manufacturing shrank in Germany, as well as in France, Austria and Greece.
The ECB’s 24-member Governing Council left its benchmark interest rate at 0.05 percent yesterday. The deposit rate and the marginal lending rate remained at minus 0.2 percent and 0.3 percent, respectively.
Meanwhile, UK Chancellor of the Exchequer George Osborne’s housing initiative did not pose a risk to financial stability, the Bank of England (BOE) said as it asked the government for more powers to limit mortgage lending.
With UK house prices climbing to a record this year and BOE governor Mark Carney saying the property market posed one of the biggest risks to the recovery, the financial policy committee (FPC) yesterday asked the government for the ability to limit loan-to-value ratios and debt levels in the buy-to-let market.
In a letter to the chancellor published in London alongside a record of the FPC meeting held last week, Carney said there were “no material” threats from the Help to Buy programme that enabled buyers to purchase homes with a down payment of as little as 5 percent, suggesting the key threats to the economy came from other parts of the market.
The stimulus “does not appear to have been a material driver” of house-price growth, the governor said. – Bloomberg