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Mario Draghi extends quantitative easing: what the ECB decision means for savings and mortgages Mario Draghi extends quantitative easing: what the ECB decision means for savings and mortgages
(about 14 hours later)
The ECB has extended its quantitative easing programme by an extra six months, until the end of March 2017.The ECB has extended its quantitative easing programme by an extra six months, until the end of March 2017.
The ECB is currently buying €60 billion-worth of bonds a month as a way of injecting cash into European banks. This was supposed to stop in September 2016 but it’s now been extended by six months.The ECB has also said it will start buying regional and local government debt.The ECB is currently buying €60 billion-worth of bonds a month as a way of injecting cash into European banks. This was supposed to stop in September 2016 but it’s now been extended by six months.The ECB has also said it will start buying regional and local government debt.
That means the ECB is going to use €60 billion of new money (that it creates) a month to buy debt off governments at all levels as a way of improving liquidity – or available cash – in the economy.That means the ECB is going to use €60 billion of new money (that it creates) a month to buy debt off governments at all levels as a way of improving liquidity – or available cash – in the economy.
Draghi: The latest staff projections indicate continued downside risks to the inflation outlook
One word: deflation. Inflation in the EU is currently at 0.1 per cent last month, way below the target 2 per cent. The ECB wants to stop it slipping further into deflation, which would mean that the price of goods and services would be going down month on month.One word: deflation. Inflation in the EU is currently at 0.1 per cent last month, way below the target 2 per cent. The ECB wants to stop it slipping further into deflation, which would mean that the price of goods and services would be going down month on month.
€60 billion
The amount of money the ECB injects into the European economy every month
Draghi said that the current rate of QE - plus the cheaper price of oil - is helping the Eurozone to recover, but that more is needed. "Let me make this clear. We are doing more, because it works, not because it fails," he said.Draghi said that the current rate of QE - plus the cheaper price of oil - is helping the Eurozone to recover, but that more is needed. "Let me make this clear. We are doing more, because it works, not because it fails," he said.
If we hit deflation, households may start to hold off on spending to wait for things to get cheaper, companies will do the same with their investments, and prices would fall again.If we hit deflation, households may start to hold off on spending to wait for things to get cheaper, companies will do the same with their investments, and prices would fall again.
The ECB has cut the deposit rate for banks from 0.2 per cent to 0.3 per cent in another attempt to push inflation up from record low levels and get the European economy moving again.The ECB has cut the deposit rate for banks from 0.2 per cent to 0.3 per cent in another attempt to push inflation up from record low levels and get the European economy moving again.
First of all, it affects banks, not consumers or businesses.First of all, it affects banks, not consumers or businesses.
The ECB is a bank for other banks, which use it to deposit money from loans (from quantitative easing, for example), when they don’t want to spend them. Banks will now be charged slightly more for these deposits to try and encourage them to spend, not park, their cash.The ECB is a bank for other banks, which use it to deposit money from loans (from quantitative easing, for example), when they don’t want to spend them. Banks will now be charged slightly more for these deposits to try and encourage them to spend, not park, their cash.
Unlikely – retail banks depend upon savings deposits as a source of funding, so banks don’t like to charge customers to put money away.Unlikely – retail banks depend upon savings deposits as a source of funding, so banks don’t like to charge customers to put money away.
Banks decide what money to lend rates to customers based on how much their own funding costs, but that decision is based on many factors, not just the deposit rate. So it’s hard to say whether the lending rate will change based on this one decision.Banks decide what money to lend rates to customers based on how much their own funding costs, but that decision is based on many factors, not just the deposit rate. So it’s hard to say whether the lending rate will change based on this one decision.