January 22, 2015 / 7:09 PM / 3 years ago

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

(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.

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

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.

“The presence of a huge amount of eurosystem liquidity in 2012 did not lead to an upturn in lending to the real economy and indeed, it is difficult to see this occurring until euro area banks have strengthened their balance sheets sufficiently.”

Draghi said the ECB will buy sovereign bonds from March through September 2016 or until such a time that inflation shows signs of picking up pace.

A majority of economists, 30 of 45, said QE will likely be extended beyond that, especially if austerity pinned demand from consumers and global crude oil prices don’t rise. Six said it was “very likely”.

It wouldn’t be the first time. The Federal Reserve just wrapped up the third of its QE programs that extended over a period of 6 years and the Bank of Japan has been conducting QE for most of the past two decades with still very low inflation.

European shares jumped on the news and bond yields, particularly from Italy, Spain and Portugal fell. The euro EUR= dropped a cent against the dollar to $1.1511.

But with bond yields already low in most euro zone countries and the euro weakening some 6 percent since January, it is unclear how a QE-induced drop in either will help the economy.

“Economically it is irrelevant but at least markets have had fun selling the euro and buying bank equities and peripheral bonds,” said Alastair Winter, chief economist at Daniel Stewart.

Polling by Reuters Polls Bengaluru; Editing by Ross Finley and Toby Chopra

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