The European Central Bank announced it will begin €60 billion ($69.4 billion) of public and private debt purchases per month as part of a quantitative easing strategy, in what money managers said was a surprise move in terms of size and one that is expected to further weaken the euro and spark interest in eurozone risk assets.
Mario Draghi, president of the ECB, announced Thursday an expansion of the bank's current asset-backed and covered bond purchase program. The €60 billion of asset purchases will start in March and run until at least September 2016.
Sovereign debt purchases will be split across eurozone members.
In a news conference announcing the move, Mr. Draghi added that the ECB will continue the QE program until effects are seen in inflation levels.
“(Mr.) Draghi has managed to exceed the market's expectations in terms of the quantity of purchases and length of the program,” said Adrian Lee, president and chief investment officer of active currency manager Adrian Lee & Partners, in an e-mail. “It's no surprise the euro has weakened since the announcement.”
Mr. Lee said that, by exceeding expectations, the ECB has shown it understands the markets' needs, “and is intent on giving it that, and more. We expect the euro to weaken from here over the long term.”
The euro had depreciated 1.6% to €1:$1.13 at the close of markets on Thursday.
“Much has been commented about the (€60 billion) number, but for us, the most significant announcement today was that this is an open-ended commitment, running at the very least until late 2016, if not beyond,” said Javier Corominas, head of economic research and FX strategy at Record Currency Management, in an e-mail. “The main reason was to bring medium- to long-term inflation expectations back in line with the 2% level, which essentially only starts presenting a problem (potentially) for the ECB when the base effects from the recent oil decline start dropping off from the data (in the late summer this year). We think this focus on current inflation will probably not deter inflation expectations from correcting significantly upward, thus providing ECB the further ammunition it needs for QE.”
Early commentators cited a positive move for risk assets. Bill Street, head of investments for Europe, the Middle East and Africa at State Street Global Advisors, said in a statement that the firm expects the announcement to have a positive effect on risky assets, alongside a further depreciation of the euro. It will also “support lower bond yields in both the core and periphery of the euro area,” Mr. Street added.