ECB’s Draghi Says Extra Liquidity 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.

via CNBC

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza