ECB unveils massive quantitative easing (QE) boost for eurozone

The European Central Bank (ECB) will inject at least €1.1 trillion (£834 billion) into the ailing eurozone economy.

The ECB will buy €60bn bonds each month from banks until the end of September 2016, or even longer, in what is called quantitative easing (QE).

QE in theory increases the supply of money, something that keeps interest rates low and encourages borrowing and therefore spending.

The news sent the euro to an 11-year low against the against the US dollar.

In late afternoon (22 January) US trading the euro was down 2% at $1.1367. It also fell 1.1% against the pound to be worth 75.82, or €1.3187. It has lost 6% of its value so far this year.

Stalling

Record-low eurozone rates have failed to boost the 19-country euro area.

The ECB also said it would keep eurozone interest rates at 0.05%, a record low.

Rates have been at that level since September 2014.

ECB President Mario Draghi said that the programme would begin in March.

Earlier this month, figures showed the eurozone was suffering deflation, creating the danger that growth would stall as businesses and consumers shut their wallets, as they waited for prices to fall.

Draghi said the programme would be conducted "until we see a sustained adjustment in the path of inflation", which the ECB has pledged to maintain at close to 2%.

Shares rose in response to the news and bond yields, which are linked to the amount governments pay to borrow, fell, particularly those of the weakest countries including Italy, Spain and Portugal.

Lowering the cost of borrowing should encourage banks to lend and eurozone businesses and consumers to spend more.

It is a strategy that appears to have worked in the US, which undertook a huge programme of QE between 2008 and 2014.

The UK and Japan have also had sizeable bond-buying programmes.

But some economists question what impact, longer term, this move can have. "Economically it is irrelevant but at least markets have had fun selling the euro and buying bank equities and peripheral bonds," said Alastair Winter, chief economist at Daniel Stewart.

'Sizeable' slack

Draghi said the ECB's own programme had been taken because it was necessary to "address heightened risks of too prolonged a period of low inflation".

Draghi said there had been a "large majority" on the ECB's governing council in favour of triggering the bond-buying programme now - "so large that we did not need to take a vote".

Up until now, the ECB has resisted QE, although Draghi reassured markets in July 2012 by saying he would be prepared to do whatever it took to maintain financial stability in the eurozone, nicknamed his "big bazooka" speech.

Since then, the case for quantitative easing has been growing.

In advance of the ECB's announcement, there had been speculation that the central bank would not actually buy any bonds itself, but would invite the central banks of eurozone member governments to do so.