ECB Launches Landmark €1.1 Trillion Quantitative Easing Program

The ECB announced on Thursday that it would start its purchase of sovereign bonds on March 9 to support an accelerating economic recovery in the Eurozone, and would continue to do so until there was a “sustained adjustment in the path of inflation”. It is expected that this scheme will push GDP expansion to 1.5% this year, 1.9% in 2016, and 2.1% in 2017, compared with December projections of 1% and 1.5% for 2015 and 2016 respectively, and will also drive inflation back up to 1.8% by the end of 2017.

The announcement has already had an impact on the bond market, as buyers drove the yield on Italy’s 10-year benchmark down to a new record low of 1.34%, and the German equivalent to 0.34%. Some analysts have argued that the program could further distort the bond market where the shorter-term debt of several countries already has negative yields. However, ECB President Mario Draghi said that the ECB would continue to buy bonds provided the yields were above the central bank’s deposit rate of minus 0.2% (in effect limiting the price the ECB would pay for government debt).