ECB Preparing Quantitative Easing Program For January Meeting?

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According to two unnamed officials, the European Central Bank (ECB)’s Governing Council is deliberating on a program of broad-based asset purchases to take effect in January.

Sovereign debt is part of the proposal, as well as various types of bonds, but equities will not be within its mandate. Sources claim that the Council is still deliberating on whether to implement another round of quantitative easing, and their decision may be influenced by soon-to-be-released data. A spokesman for the ECB declined to comment on the discussions.

ECB’s  need for stimulus

Policy makers “won’t tolerate” a prolonged period of low inflation, said ECB President Mario Draghi. He claimed that “all assets but gold” were up for discussion as potential purchases, and that internal committees had been asked to think up novel stimulus measures to boost growth and inflation.

On 11 December the ECB will share out another round of long-term loans, enabling it to see how far it has achieved its objective of boosting its balance sheet by $1.24 trillion. The next monetary policy meeting will fall on 22 January, just over a week after an important ruling on the legality of its Outright Monetary Transactions (OMT) policy.

The OMT policy allowed the ECB to buy bonds from countries who signed up to a program of reforms, and was credited with arresting a potential crisis in government bonds in 2012. If the European Court of Justice rules says that the practice is illegal, it will severely hinder any ECB attempt to influence sovereign-debt markets.

A desire for higher rates of inflation?

The ruling could present another hurdle in the march towards another round of quantitative easing, but according to Richard Barwell, senior European economist at Royal Bank of Scotland Group Plc in London, the most important point is whether “they agree it’s not acceptable to have low inflation? If they agree that, then they just have to work out how to get from A to B.”

ECB forecasts have taken a hit of late. Inflation is expected to be 0.5% this year and 0.7% in 2015, with economic growth of 0.8% and 1% respectively. These figures have been revised from previous predictions of inflation and growth of 1.1% for 2014. The latest decrease in oil prices has yet to be taken into account.

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