The European Central Bank (ECB) under President Mario Draghi has announced a massive new stimulus program in order to assist the ailing Eurozone economy. Besides cutting the deposit facility rate by 10 basis points to -0.50%, a fresh round of quantitative easing (QE) was announced. Starting November 1st 2019, the ECB will restart its bond buying program at a pace of €20 billion per month. The QE program is open-ended and will remain in place until inflation reaches the ECB target which currently stands at 2.0%.

The European Central Bank (ECB) will stop its purchases of EU government bonds which has been in place since 2015 despite criticism from Germany. The ECB added over €2 trillion worth of assets to its balance sheet during that period which includes €180 billion of corporate bonds. While the ECB will stop purchasing bonds at the end of this month, it may reinvest proceeds. In addition, interest rates are on track to remain at current levels for much longer than previously expect.

As widely expected, the US Federal Reserve increased interest rates for the second time in 2018 by 25 basis points to Lower Bound Level of 1.75% and and Upper Bound Level of 2.00%. The US central bank also upgraded the amount of planned interest rate increases to four, which means that two more 25 basis point increases are on the table in the second-half of the year. The hike came on the back on a rise of inflation as well as a drop in the official unemployment rate.

According to most, if not all, central bankers quantitative easing following the 2008 global financial crisis was the tool which prevented deflation from taking place. Quantitative easing programs were in most cases bond purchases by central banks in order to push down yields. Some central banks, like the Bank of Japan, also purchased equity stakes in order to combat deflationary pressures in the hope to kick-start the economy.

Mario Draghi, the President of the European Central Bank (ECB) does not use the term of tapering when he refers to adjustments to the central banks €60 billion per month quantitative easing program in the form of bond purchases. The consensus for today’s ECB meeting was that the deposit rate facility will remain unchanged at -0.40%, the central bank rate to remain unchanged at 0.00% and that the marginal lending facility will remain unchanged at 0.25%.