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ECB Committed To Expanding Balance Sheet To 2012 Levels – Draghi

By Kitco News
Thursday November 6, 2014 9:37 AM

(Kitco News) - Following its November monetary policy meeting Thursday, the European Central Bank confirmed that its quantitative easing programs will move its balance sheet back to levels last seen at the start of 2012.

However, unlike the October meeting, ECB President Mario Draghi was vague about an actual target. Draghi, when asked how big the balance sheet would grow or potential target levels, only reiterated what he said in his opening statement.

“We will also soon start to purchase asset-backed securities. The programs will last for at least two years. Together with the series of targeted longer-term refinancing operations to be conducted until June 2016, these asset purchases will have a sizeable impact on our balance sheet, which is expected to move towards the dimensions it had at the beginning of 2012,” he said.

Image courtesy of the European Central Bank: ECB President Mario Draghi gives his opening statements during the Nov. 6 press conference following the central bank's monetary policy meeting.

In the October meeting, during the question-and-answer period, Draghi said there was the potential for the central bank to expand its balance sheet by 1 trillion euros.

Although there were no specific targets given, currency analysts at Brown Brothers Harriman pointed out that the decision to increase the balance sheet was unanimous, which pushed the euro down to below $1,24 against the U.S. dollar.

“This was the first time such a reference was made in the introductory remarks, which gives it more gravitas,” they said.

Before the press conference, the ECB announced that it would leave its interest rates unchanged with its the main refinancing operation holding at 0.05%, its marginal lending facility rate at 0.30% and its deposit facility at negative 0.20%.

During the press conference, Draghi said that the governing council is confident that the steps they have taken to expand the balance sheet will help boost economic growth and inflation expectations. He added that the council is prepared, unanimously, to introduce more initiatives if the outlook worsens.

“Should it become necessary to further address risks of too prolonged a period of low inflation, the governing council is unanimous in its commitment to using additional unconventional instruments within its mandate,” he added.

During the press conference Draghi added that the governing council had a “rich and extensive conversation” regarding initiatives taken by other central banks. He added that the reality is that the ECB will be expanding its balance sheet while others like the Federal Reserve will be shrinking theirs.

Looking at the state of the eurozone economy, in his opening statement, Draghi said that the risks are to the downside and that data indicate a weakening in the region’s growth momentum. He added conditions will be closely monitored. “In this context, we will focus in particular on the possible repercussions of dampened growth dynamics, geopolitical developments, exchange rate and energy price developments, and the pass-through of our monetary policy measures,” he said in his statement.

Finally, Draghi also reiterated that major structural reforms are needed to boost economic growth.

“A full and consistent implementation of the euro area’s existing fiscal and macroeconomic surveillance framework is key to bringing down high public-debt ratios, to raising potential growth and to increasing the resilience of the euro area economy to shocks,” he said.

By Neils Christensen of Kitco News; nchristensen@kitco.com



Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in precious metal products, commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.
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