ECB president Mario Draghi said that the bank will purchase bonds worth €60bn per month from March until the end of September 2016.
The bank will purchase euro-denominated investment grade securities in the secondary market.
Draghi said the quantitative easing will continue until the eurozone sees “sustained adjustment in the path of inflation which is consistent with our aim of achieving inflation rates below, but close to, 2% over the medium term”.
An announcement on 7 January revealed that inflation turned negative by 0.2 percent over 2014.
“Supported by our monetary policy measures, the expected recovery in demand and the assumption of a gradual increase in oil prices in the period ahead, inflation rates are expected to increase gradually later in 2015 and in 2016,” added Draghi.
Meanwhile, Eurozone interest rates will continue to be held at 0.05%, as they have since September last year.
Following Draghi’s announcement, the value of the EUR fell by a cent against the USD to reach $1.1511.
Beyond expectations
Tim Stevenson, fund manager at the Henderson Horizon Pan European Equity Fund and Henderson Eurotrust, said the ECB has delivered “more than expected”.
“Questions about whether it can be effective at current interest rate levels, whether it is needed and alleged opposition from Germany are possibly less important right now than the simple fact that the ECB is taking decisive action,” he said. “This should encourage confidence in the midst of a nervous economic climate in European business.”
He added that the €60bn monthly purchase should help European economies to improve and avoid the “mayhem” that would have ensued within markets without intervention: “The decision was not unanimous, but it sounds like opposition was limited”.
“Perhaps the announcement of QE will be enough for markets to now focus on some facts: European markets are cheap relative to the USA – perhaps for good reason, but at extreme levels. Against their own history they are expensive in price/earnings ratio terms, but attractive from an income perspective.
“Furthermore, economies are improving, slowly. Finally, the falling oil price is acting as a massive boost for the consumer and a weaker euro vs the US dollar is a major benefit for European exporters.”
High yield opportunities
Anthony Doyle, director and head of fixed income investment specialists at M&G Investments, said the ECB “clearly” feels that its price stability objective is under threat, as a result of falling prices.
“We believe that in the short-term QE could force European government bond yields lower, meaning that investors will increasingly look for higher yielding investment opportunities,” he said. “As a result, investment grade and high yield bonds could benefit from today’s announcement.
“Over the longer-term, we believe that government bond yields will increase as today’s measures start to have a positive impact on inflation. We expect to see an improvement in the ability of European non-financial corporations and households to access credit which should boost demand. “
Gautam Batra, investment strategist at Signia Wealth, said: “This is a milestone announcement from the ECB and will go some way to support market sentiment. However, the outcome of the Greek election on Sunday is a much more acute risk to market stability in the near term.”
