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ECB chief flags beefed up asset-buying programme

ecbFRANKFURT--The European Central Bank cut its growth and inflation forecasts on Thursday, warning of possible further trouble from China and paving the way for an expansion of its already massive 1 trillion-euro plus asset-buying programme.
  The ECB, which left interest rates unchanged in a widely expected decision, said growth would suffer from fading momentum in emerging markets, particularly China, and falling oil prices could drag the 19-member euro zone back into deflation in coming months.
  The new projections are a stark admission that Europe's recovery, described by the bank as disappointing, is hardly gaining momentum. Consequently, the ECB may have to roll out new measures, just six months after it began quantitative easing, considered a policy "bazooka" when it was introduced in January.
  For the first time, ECB President Mario Draghi said explicitly the bond-buying programme may run beyond September 2016 and the bank may adjust its size and composition. As it stands, the ECB is buying 60 billion euros ($66.68 billion) per month asset buys, mostly government bonds.
  "There aren't special limits to the possibilities that the ECB has in gearing up monetary policy," Draghi told a news conference. "The risks to the euro area growth outlook remain on the downside, reflecting in particular the heightened uncertainties related to the external environment."
  The euro fell 1 percent against the dollar on Draghi's comments, European stocks rallied and bond yields fell as investors started to price in new policy steps from the bank.
  "The words chosen by the ECB suggest that it would not hesitate to raise the size of its asset purchases and prolong them beyond September 2016 if the outlook for growth and inflation weakens further," Holger Schmieding, an economist at Berenberg said. "As far as such conditional statements go, the ECB was rather clear: It would not take much further turbulence to trigger an ECB response. We can count this as a clear verbal intervention."
  In one small change to the quantitative easing scheme, a possible precursor for further moves, the bank increased the share of any sovereign bond issue it could buy to 33 percent from 25 percent, provided that did not give it a blocking minority among bondholders. "September 2016 is still a long way off, and the market would probably not be much impressed by the announcement of a mere continuation of the purchases beyond this date," Commerzbank economist Joerg Kraemer said.
  "We think the ECB is more likely to announce a higher monthly purchase volume, fuelling expectations that it will extend its bond purchases well beyond September 2016," Kraemer added.

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