Draghi: ECB QE risks are contained

The extra liquidity provided by the European Central Bank (ECB) could pose risks to the region’s financial stability, according to Mario Draghi, the central bank’s president.

Addressing an audience in Frankfurt, he said the new policy measures may entail some risks, but stressed that these risks were “contained.”

“Should they emerge, macroprudential policy is best suited to address them,” he said.

Draghi’s long-awaited quantitative easing (QE) program kicked into gear on Monday – a move that has further suppressed benchmark sovereign bond yields in the euro zone.

“Our purchases reduce returns on safer assets,” he said. “This encourages investors to shift to riskier, higher-yielding assets. Pension funds, banks and other market participants that we buy securities from are likely to substitute these for other long-term assets, thereby eventually pushing up prices more broadly.”

Market reaction since the launch of the bond-buying program on Monday was evidence that asset-purchasing can work for the euro zone, Draghi added. He said this policy was unconventional but “not unorthodox,” and stated that it could shield countries from contagion from Greece.

CNBC

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Craig Erlam

Craig Erlam

Senior Market Analyst - UK & EMEA at OANDA
Based in London, Craig Erlam joined OANDA in 2015 as a Market Analyst. With many years of experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while producing macroeconomic commentary. His views have been published in the Financial Times, Reuters, The Telegraph and the International Business Times, and he also appears as a regular guest commentator on the BBC, Bloomberg TV, FOX Business and BNN. Craig holds a full membership to the Society of Technical Analysts and is recognised as a Certified Financial Technician by the International Federation of Technical Analysts.
Craig Erlam