ECB chief Draghi: QE has made economies more resilient

Mario DraghiImage copyright
Reuters

European Central Bank President Mario Draghi has said unconventional policies like quantitative easing (QE) have been a success both sides of the Atlantic.

QE was introduced as an emergency measure during the financial crisis to pump money directly into the financial system in addition to keep banks lending.

A decade later, the stimulus policies are still in place, although he said they have “made the entire world more resilient”.

although he also said gaps in understanding these relatively fresh tools remain.

As the economic recovery within the eurozone gathers pace, investors are watching closely for when the ECB will ease back further on its 60bn euro (£55bn) a month bond-buying programme.

Central bankers, including Mr Draghi, are meeting in Jackson Hole, Wyoming, later This specific week, where they are supposed to discuss how to wind back QE without hurting the economy.

On Monday, a former UK Treasury official likened the stimulus to “heroin” because the idea has been so difficult to wean the UK, US in addition to eurozone economies off the idea.

In a speech in Lindau, Germany on Wednesday, Mr Draghi defended QE in addition to the ECB’s policy of forward guidance on interest rates.

“A large body of empirical research has substantiated the success of these policies in supporting the economy in addition to inflation, both within the euro area in addition to within the United States,” he said.

The ECB buying relatively safe assets such as government bonds means of which banks can lend more in addition to improve access to credit for riskier borrowers, Mr Draghi said.

He added: “Policy actions undertaken within the last 10 years in monetary policy in addition to in regulation in addition to supervision have made the entire world more resilient. although we should continue preparing for fresh challenges.”

‘Heroin’

Critics of QE argue the idea has inflated asset bubbles in addition to stoked inequality by rewarding the asset-rich while punishing savers.

Lord Macpherson, who was permanent secretary to the Treasury when the Bank of England started off QE in 2009, tweeted on Monday: “QE like heroin: need ever increasing fixes to create a high. Meanwhile, negative side effects increase. Time to move on.”

The Bank of England’s balance sheet swelled to £500bn last year, while the US Federal Reserve held $4.2 trillion (£3.3tn) of assets – which the idea will be right now looking to cut down.

The ECB’s massive bond-buying programme, which started off in March 2015, will be supposed to top 2tn euros by the year end.

Mr Draghi’s comments came as a survey showed continued eurozone businesses growth in August, raising further questions about how much longer the stimulus will be needed.

The fastest rise in manufacturing exports in six-in addition to-a-half years helped to offset a mild slowdown in services growth, according to the Eurozone Composite Purchasing Managers’ Index.

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