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ECB quantitative easing announcement provokes mixed response

29 January 2015

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Industry experts are divided over whether the impact of the larger than expected quantitative easing plans announced by the European Central Bank (ECB) will be positive.

The ECB announced an expanded asset purchase programme last week to address the risks of an overly prolonged period of low inflation, it described as reaching an "historical low".

The programme will encompass the asset-backed securities purchase programme (ABSPP) and the covered bond purchase programme (CBPP3), which were both launched late last year.

Combined monthly purchases will amount to 60 billion Euros and are intended to be carried out until at least September 2016.

Russ Koesterich, BlackRock's global chief investment strategist credited the rise of stock prices and drop in volatility to the announcement.

"All told, most of the credit for the rally goes to the ECB, the size of the package, the open ended nature of the commitment and the willingness to purchase longer-dated bonds all came as positive surprises to investors," he said.

"By itself, QE is unlikely to spur European growth, but it should go a long way in mitigating the risk of deflation and supporting European equities, particularly in peripheral countries where stocks are already up sharply year to date."

Jon Jonsson, senior portfolio manager in the global fixed income team at Neuberger Berman said the programme is late in coming but should encourage inflation.

"Economists and investors have been arguing for a couple of years that the ECB needed to take more forceful action to stimulate the European economy."

"Overall, the announcement takes a constructive step in repairing the credibility of the ECB."

A more cautious response has been displayed by some business and political leaders across Europe, with bank of England governor Mark Carny warning the radical stimulus could disrupt the financial markets.

"In an environment of low interest rates and quantitative easing there can be excessive risk-taking and investors could make the false assumption that the Bank of England was ready to step in causing them to buy riskier assets than they might otherwise have done," he said.

First published 29.01.2015

Lindsay.sharman@wilmington.co.uk