ECB to keep buying debt well into future

14 December, 2018 12:00 AM printer

FRANKFURT AM MAIN: The European Central Bank is widely expected to end Thursday the "quantitative easing" (QE) programme that has seen it pump 2.6 trillion euros ($3.0 trillion) into the eurozone economy to stoke growth and inflation.

But even after net purchases of government and corporate bonds end, it will continue to stimulate the economy long into the future by reinvesting the proceeds from its mammoth stock of debt as it matures, reports AFP.

The ECB originally began buying debt in 2015, saying it wanted to fight the threat of deflation and keep money flowing around the eurozone economy.

Growth has picked up since then, surging in 2017 before falling back this year, but forecasts see inflation falling short of the central bank's target of close to, but below 2.0 percent.

Continued asset purchases by the central bank are aimed as before at pushing investors' money -- largely banks -- out of bond markets and into lending to firms and households to power expansion and price growth.

With clouds gathering over the eurozone economy and borrowing costs for highly-indebted members like Italy rising, the ECB is even less likely to quit markets for good.

The ECB will have around 200 billion euros in hand to invest over 2019 from maturing bonds, peaking at 31.6 billion in October after a trough of 5.4 billion in August.

Each maturing bond from a eurozone member state should in principle be replaced by one from the same country -- ensuring the central bank continues to parcel out its holdings in line with nations' shares in its capital.

That so-called "capital key" was recalculated this month based on the latest economic and population data, with France and Germany's shares increasing slightly while Italy's shrank.

The result: slightly more investment in German "Bunds" and less in Italian government debt.

ECB observers speculate about the bank buying longer-dated debt with the proceeds from its short-term bonds, mimicking the US Federal Reserve's "Operation Twist".