Back in January, ECB President Mario Draghi doubled down on his earlier commitment to do “whatever it takes” to prop up the European economy with easy money.” “There are no limits to how far we’re willing to deploy our instruments,” Draghi swore in January.
He wasn’t joking. Today, Draghi and the ECB resorted to what some are calling the “kitchen sink” option, and what others are calling the “bazooka.”
You don’t have to be an expert on monetary policy to understand what these metaphors are trying to tell you.
According to CNBC:
In light of cuts to the growth and inflation outlook, the ECB announced on Thursday that it had cut its main refinancing rate to 0.0 percent and its deposit rate to minus 0.4 percent.
“While very low or even negative inflation rates are unavoidable over the next few months as a result of movement in oil prices, it is crucial to avoid second-round effects,” Draghi said in his regular media conference after the ECB statement.
The bank also extended its monthly asset purchases to 80 billion euros ($87 billion), to take effect in April. In addition, the ECB will add corporate bonds to the assets it can buy — specifically, investment grade euro-denominated bonds issued by non-bank corporations. These purchases will start towards end of the first half of 2016.
Eighty billion euros? That’s a huge number. Some may remember that during QE3 — the largest of the Quantitative Easing programs — in 2013, the Fed was making $85 billion per month in asset purchases.
It eventually trimmed back to $75 billion and then $65 billion. In that time, the Fed amassed a balance sheet of more than $4 trillion.
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