DRAGHI UNVEILS REVAMPED QE PROGRAM AS ECB DOWNGRADES OUTLOOK

Mario Draghi unveiled a revamp of quantitative easing to allow for more purchases of each euro member’s debt as the weaker global outlook prompted a wholesale reduction of officials’ economic forecasts through 2017.

The European Central Bank president said in Frankfurt on Thursday that the Governing Council has now set a potential purchase limit of 33 percent of any given bond, from 25 percent previously. The euro slid to a two-week low as Draghi said the emerging-market rout threatened global expansion and that consumer prices may barely grow this year.

“The information available indicates a continued, though somewhat weaker, economic recovery and a slower increase in inflation rates compared with earlier expectations,” Draghi told reporters. “Taking into account the most recent developments in oil prices and recent exchange rates, there are downside risks” to the inflation forecast, he said.

The move to reset the ECB’s stimulus program after a six-month review, which will be subject to conditions for each country, gives more flexibility for officials as they prepare to continue bond purchases at least until September 2016. Weaker commodity prices, slowing trade and volatility in global equities have fueled speculation that more stimulus is on the way.

Purchase Limit

The increase in the limit for purchases of each bond issue is subject to “a case-by-case verification” of the circumstances involved. It should not create a situation whereby the ECB would have blocking minority power, in which case the issue share limit would remain at 25 percent, Draghi said.

Stimulus is programed to continue “until the end of September 2016, or beyond, if necessary,” Draghi said, in a tweak to language that hints more strongly than before on officials’ readiness to expand purchases.

The euro dropped 0.9 percent to $1.1129 at 2:29 p.m. London time

and touched $1.1107, its weakest level since Aug. 20.

“Draghi is assuring very clearly that if the turmoil gets any worse, the ECB would do all it takes to keep the recovery on track,” said Holger Schmieding, chief economist at Berenberg Bank in London. “It would not take much further to elicit the ECB response.”

Euro falls as Draghi speaks

The ECB cut its outlook for inflation and growth in each year through 2017. Officials see consumer prices barely growing this year with an increase averaging 0.1 percent. Inflation will then accelerate to 1.1 percent in 2016 and 1.7 percent the next year, Draghi said. The economy will grow 1.4 percent in 2015 and reach a pace of 1.8 percent two years later, he said.

“The Governing Council will closely monitor the risks to the outlook for price developments over the medium term,” Draghi said. “We will focus in particular on the pass-through of our monetary policy measures, as well as on global economic, financial, commodity price and exchange rate developments.”

source: Bloomberg