3rd LD Writethru: ECB to start euro zone quantitative easing

The European Central Bank decided on Thursday to start quantitative easing (QE) by purchasing public and private securities in a bid to address prolonged period of low inflation.

ECB President Mario Draghi said the purchasing in the second market would start at March 2015 with a monthly amount of 60 billion euros (about 69.48 billion U.S. dollars), and was intended to last until end-September 2016, but would in any case be conducted until the ECB saw a sustained adjustment in the path of inflation which is consistent with its medium-term inflation maintenance target of below, but close to, 2 percent.

Draghi said the purchases of securities issued by euro zone governments and agencies would be based on national central banks' share in the ECB's capital key which was roughly 18 percent for Germany, 14 percent for France, 12 percent for Italy and 9 percent for Spain.

He said the extended asset purchasing, which would include bonds issued by euro zone governments, agencies and European institutions, would be coordinated by the ECB and conducted also by individual national central banks. Among them, 20 percent would be subject to "a regime of risk sharing."

That leaves 80 percent of the assets to be held by national central banks with the risk of losing the responsibility of the individual central bank. Germany is widely seen as the country which was strongly opposed to risk sharing, wanting to avoid a situation where it was exposed, for example, to losses on Greek or Italian bonds. Giving up risk sharing was seen as the only way the ECB could persuade Germany to support QE.

Draghi said the decision was made against a backdrop that inflation dynamics continued to be weaker than expected, while the ECB's previous bond and security purchasing program in private sectors was insufficient to adequately address the risk of too prolonged a period of low inflation.

Annual inflation rate in the euro zone dipped to a negative territory in December 2014 and reached minus 0.2 percent despite ECB's previous stimulating efforts of cutting interest rates and buying private sector bonds and asset-backed securities.

Earlier on Thursday, the ECB decided to keep key interest rates unchanged at a historically low level.

Analysts said the QE was the last policy instrument the ECB could use in order to save the euro zone from falling into deflation spiral where consumers would postpone their spending due to expectations of further drop in prices.

Draghi expected the QE program would ease monetary and financial conditions for firms and households, making their access to finance cheaper, supporting investment and consumption and ultimately contribute to a return of inflation towards 2 percent.

He said the downside risks surrounding the euro zone economy should diminish after Thursday's decision, but other policy areas need to contribute decisively in order to increase investment, create jobs and raise productivity growth.

"It is crucial that structural reforms be implemented swiftly, credibly and effectively," Draghi said, adding that fiscal policies should follow up to support the economic recovery.

"All countries should use the available scope for a more growth-friendly composition of fiscal policies," he said. Endit