European Central Bank president Mario Draghi just announced that the ECB will extend its QE program of buying €60 billion euros until at least March 2017 or beyond.
The ECB will also broaden its QE program to include the purchase of regional debt, not just sovereign debt, from eurozone members. The ECB will also now re-invest its purchased assets until they mature.
Draghi said during the press conference that Thursday’s decision was not unanimous.
Following this announcement, the euro was trading near $1.08 against the dollar, near its highs of the day as the extension of QE — rather than a size increase — seems to have disappointed the market.
On Thursday, the ECB cut its deposit rate to -0.3% from -0.2% in a cut that was widely expected.
The ECB kept the interest rates on its main refinancing operations and the interest rate on the marginal lending facility unchanged at 0.05% and 0.30%, respectively.
The ECB also released its latest economic projections on Thursday, upgrading its 2015 GDP expectations for the euro area to 1.5% from 1.4%, while growth is still expected to come in at 1.7% next year. GDP growth is now expected to hit 1.9% in 2017, better than the 1.8% previously forecast.
Inflation expectations, however, were slightly downgraded.
The ECB still sees 0.1% annual inflation this year, with 2016 inflation coming in at 1% (down from 1.1% previously), and 1.6% in 2017 (down from 1.7% previously).
Draghi also called for increased fiscal spending from euro members, including increased investment in infrastructure, reiterating a long-held call for what he has called “structural reforms” to support the recovery that has been in place for the last few years in the eurozone.
Draghi said euro members should strive for a more “growth friendly” fiscal policy. You can read Draghi’s full prepared remarks here.
In response to a question about why the ECB didn’t do more, Draghi said that basically, the ECB’s policies have worked and therefore the ECB saw little reason to dramatically change course in the policy itself — i.e. increase the amount of assets purchased each month.
Draghi said that in lieu of the ECB’s current actions, inflation would be about 0.5% lower next year and 0.3% lower the year after that.
When asked about if the ECB could increase the size of its program, Draghi said that the ECB can “always” adjust its program but didn’t say whether or not the ECB discussed increasing QE program.
Draghi was also asked if low yields across Europe were perhaps a factor in limiting the ECB’s ability to increase the size of QE but said that this would not hamper any future potential increases in the size of this program.
In closing, Draghi said that while any action taken by the ECB will impact the euro exchange rate, a specific exchange rate is not a policy target.