ECB quantitative easing probably won't bring inflation up to target: economists

Thu Jan 22, 2015 2:04pm EST
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By Sumanta Dey

(Reuters) - The European Central Bank's plan to buy sovereign bonds won't be enough to bring inflation up to target, according to a slim majority in a Reuters poll of 45 economists taken after its more than 1 trillion euro program was announced.

As such, it is also "likely" that the program, which will have the ECB buy up to 60 billion euros of securities per month from March, will last beyond the central bank's intentions to end it by September 2016, the poll found.

ECB President Mario Draghi announced a last-ditch plan on Thursday to spur inflation and to revive the euro zone economy with an intention to purchase more than one trillion euros of sovereign bonds and private securities.

But in a snap poll conducted after the press conference, 24 of 45 economists said the quantitative easing program would not succeed in raising inflation to the ECB's target of just below 2 percent.

Inflation is currently nowhere near that. It fell to -0.2 percent in December and Draghi warned at the press conference that it is likely to be low or negative in months ahead.

"There is no guarantee that QE will work. The ECB can prepare the grounds for more investment and activity but it cannot force consumers to spend or companies to invest," wrote Carsten Brzeski, economist at ING Financial Markets, in a note.

Part of the criticism stems from the policy of sharing the risk on 20 percent of the asset purchases with national central banks, suggesting the bulk of any potential losses will fall on institutions from already highly-indebted countries.

"We remain skeptical that euro area QE will work as effectively as some claim," wrote Philip Shaw, chief economist at Investec.   Continued...

A security stands guard outside the new headquarters of the European Central Bank (ECB) in Frankfurt, January 22, 2015.  REUTERS/Kai Pfaffenbach