European Central Bank: Subterranean

The European Central Bank announced an expanded asset purchase programme at its meeting on 22 January 2015. The size of the programme and that it was open-ended beat market expectations and shows the ECB is determined to fight against the prevailing force of deflation and to raise inflation expectations.

By InvestSMART · 23 Jan 2015

By InvestSMART ·
23 Jan 2015

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The European Central Bank(ECB)announced an expanded asset purchase programme at its meeting on 22 January 2015.

The size of the programme and that it was open-ended beat market expectations and shows the ECB is determined to fight against the prevailing force of deflation and to raise inflation expectations.
After disappointing financial markets over recent years, the ECB has delivered a policy that could draw a line in the sand and ‘buy time’ for governments to make all important structural reforms to boost the growth outlook for the eurozone.
While the decision wasn’t unanimous, there was unanimity that this programme was a true monetary policy tool to protect against future legal challenges.
Further policy easing still cannot be ruled out and will depend on moves in inflation expectations from here.
ECB easing must be seen in context of other easings by major central banks; Swiss National Bank, the Danish Central Bank and Bank of Canada.
Markets have responded in a positive way to the latest ECB meeting. It is expected the general trend for a lower euro and tighter bond spreads remains in place for longer.

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Frequently Asked Questions about this Article…

What is the European Central Bank's expanded asset purchase programme?

The European Central Bank (ECB) announced an expanded asset purchase programme on January 22, 2015. This programme is designed to combat deflation and raise inflation expectations in the eurozone. It is open-ended and larger than market expectations, indicating the ECB's commitment to improving the economic outlook.

How does the ECB's asset purchase programme affect everyday investors?

For everyday investors, the ECB's asset purchase programme could lead to a lower euro and tighter bond spreads. This may create opportunities in the bond market and affect currency exchange rates, which can influence investment decisions.

Why was the ECB's decision on the asset purchase programme not unanimous?

While the decision to expand the asset purchase programme wasn't unanimous, there was agreement that it serves as a true monetary policy tool. This consensus helps protect the programme against future legal challenges, ensuring its stability and effectiveness.

What impact does the ECB's policy have on inflation expectations?

The ECB's policy aims to raise inflation expectations by combating deflationary pressures. By expanding its asset purchase programme, the ECB hopes to stimulate economic growth and increase inflation rates in the eurozone.

How does the ECB's easing compare to other central banks?

The ECB's easing measures are part of a broader trend among major central banks, including the Swiss National Bank, the Danish Central Bank, and the Bank of Canada. These coordinated efforts aim to stabilize and stimulate global economies.

What are the potential future actions of the ECB regarding monetary policy?

Further policy easing by the ECB cannot be ruled out. Future actions will depend on how inflation expectations evolve. The ECB remains open to adjusting its policies to ensure economic stability and growth.

How have financial markets responded to the ECB's latest meeting?

Financial markets have responded positively to the ECB's latest meeting. The expanded asset purchase programme has been well-received, and the general trend of a lower euro and tighter bond spreads is expected to continue.

What should investors consider when evaluating the ECB's monetary policy?

Investors should consider the potential impacts of a lower euro and tighter bond spreads on their portfolios. Understanding the ECB's commitment to combating deflation and raising inflation expectations can help investors make informed decisions in the current economic climate.