Saturday, March 2, 2024
Homecentral banksECB to get drastic? QE could be on the table

ECB to get drastic? QE could be on the table

There are nascent signs that the European Central Bank (ECB) may be considering buying bonds and other assets in an effort to stump up the euro zone's economy, in what would be something of a drastic change in policy.

The ECB has already sought to stop sliding inflation by lowering its main interest rate to a record low of 0.25 percent. Efforts to boost liquidity have seen the central bank offer ultra-cheap, long-term loans to banks, known as "long-term refinancing operations" (LTROs).

But earlier this week, ECB Governing Council member Jens Weidmann – governor of Germany's Bundesbank – told newswire MNI that an asset-purchase, or quantitative-easing (QE), program had not been ruled out. The comments were particularly striking given firstly, his reputation as one of the ECB's hawks, and secondly, the timing – with the next ECB monetary policy meeting due next week.

(Read more: Euro to strengthen even on ECB easing?)

Daniel Roland | AFP | Getty Images

Weidmann said the central bank should consider different monetary policy tools, and could look at buying up euro zone government bonds or top-rated private sector assets.

"Of course any private or public assets that we might buy would have to meet certain quality standards," he told MNI.

"But the overall question is one of effectiveness, costs and side-effects. We are currently discussing the effectiveness of these measures. The intended effects would then have to be weighed against the costs and side-effects."

Strange timing?

Unlike central banks in the U.K., U.S. and elsewhere, the ECB has not launched a QE program – mainly because there are no common euro zone bonds and the process of picking which country to buy is fraught with political dangers.

Jonathan Loynes, chief European economist at Capital Economics, said he was surprised by the timings of Weidmann's comments.

"It's not something that's been talked about a lot recently, what with the economy showing some signs of recovery," he told CNBC. "It's surprising he's talking about it now rather than a few months ago."

Loynes said the comments could indicate that the ECB had been doing some work on potential effects of an asset-purchase program, and the results had brought Weidmann round to the idea.

(Read more: ECB's Weidmann says QE not out of the question)

"It's not a comprehensive U-turn, but he's definitely softened his position on this a little bit," Loynes added.

- Advertisment -

Most Popular