Frankfurt--The European Central Bank on Monday set out on its massive bond purchase programme, its most audacious scheme yet to ward off deflation and stimulate growth in the single currency area.
The reaction on the stock markets remained mostly subdued -- in face of more immediate concerns about Greece -- but the euro fell to its lowest level against the dollar in more than 11 years and bond yields also fell.
The ECB's scheme, known as quantitative easing or QE, is not new, and has already been used by the US Federal Reserve and the Bank of England to stimulate their economies.
But QE has been a long time coming on mainland Europe and is regarded as the ultimate weapon in the ECB's vast anti-deflation armoury, the culmination of a long series of unprecedented measures to bring the eurozone's flat-lining economic recovery back to life.
The ECB hopes that by buying bonds off investors they will invest the money elsewhere, thus boosting growth and ensuring a dangerous cycle of falling prices doesn't set in.
Back in January, ECB chief Mario Draghi had announced plans to buy at least 1.14 trillion euros ($1.2 trillion) in bonds, at a rate of 60 billion euros per month, at least until September 2016.
But it was only last week that Draghi actually named the exact starting date for the scheme.
"The ECB and Eurosystem national central banks have, as previously announced, started purchases under the Public Sector Purchase Programme," the ECB announced via the micro-blogging site Twitter on Monday.
Details about the size and make-up of the purchases were not immediately available, but the national central banks will do most of the buying, accounting for 92 percent of the purchases, while the ECB itself will account for 8.0 percent.
- Already having positive effect? -
From the ECB's point of view, the mere announcement of the QE programme has already been having a positive effect, bringing down borrowing costs for firms and households alike, even before any purchases were executed.
The central bank's confidence is backed up by an upward revision of its growth forecasts last week.
But analysts were more cautious, saying it was too early to gauge the effect, let alone success, of the purchases just yet.
The effect "is unlikely to become obvious on day one of the purchases. That is more likely to be a question of months," said Commerzbank analyst Ulrich Leuchtmann.
Some ECB watchers expressed scepticism as to whether the QE programme would really have the positive effect that the central bank hopes.
AFP
