Upbeat ECB ready to start printing money next week

Thu Mar 5, 2015 12:10pm EST
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By John O'Donnell and Balazs Koranyi

NICOSIA/FRANKFURT (Reuters) - The European Central Bank said it will start printing money to buy bonds next Monday and delivered a robust economic outlook that will make it hard to extend the plan beyond its envisaged Sept. 2016 end-date.

The ECB is embarking on the program of quantitative easing (QE) with a view to raising euro zone inflation from below zero back toward its goal of just under 2 percent, and to helping buoy economies across the 19-country bloc.

The ECB, which left interest rates on hold at record lows just above zero at its meeting off-base in Cyprus on Thursday, lifted its growth forecast to 1.5 percent for this year, from the 1.0 percent it predicted in December.

ECB staff foresaw euro zone inflation rising from 0 percent this year to 1.8 percent in 2017, which would put it in line with the bank's target of close to but below 2 percent.

"If these very bullish forecasts are met, there certainly won't be more QE after September 2016," said Berenberg bank economist Christian Schulz. "In fact, they might then start discussing normalizing policy rates at some point."

But the bank still has a long way to go to convince markets its plans will be effective. Only half of the economists polled by Reuters think bond buying will help inflation rise toward the target and half think the purchases will be extended.

The euro zone's central bank has said it will buy 60 billion euros a month until Sept. 2016 or until inflation is pushed backed toward a target of close to but below 2 percent.

Economists and investors have questioned whether the ECB could accelerate or extend its bond buying should inflation fail to return from below zero to its target.   Continued...

The new European Central Bank (ECB) headquarters is pictured in Frankfurt January 21, 2015. REUTERS/Kai Pfaffenbach