What is the ECB’s asset purchase programme?
22 January 2015 (updated on 25 November 2022)
How has the asset purchase programme helped the ECB to fulfil its mandate of maintaining price stability?
The ECB has a symmetric inflation target – this means that both negative and positive deviations from the 2% target are seen as equally undesirable. In a period when inflation risks being too low for too long and short-term interest rates are close to their lower bound, interest rates alone are not sufficient for the central bank to steer inflation closer to 2%. To fulfil its mandate, the ECB needs to make use of all instruments at its disposal, including asset purchases.
What are the benefits of the asset purchase programme?
The ECB has a clear mandate: maintaining price stability. The asset purchase programme helped bring inflation back in line with the ECB’s inflation target. It also helped businesses across Europe enjoy better access to credit, boosted investment, created jobs and supported overall economic growth which is essential to stabilise inflation at its target of 2%.
Is the asset purchase programme legal ?
Yes. The ECB implements the monetary policy of the euro area. It pursues its mandate of price stability using the instruments defined in the Treaties. Outright purchases of marketable instruments are explicitly mentioned in Article 18.1 of the Statute of the ESCB. This includes the ability to purchase instruments such as government bonds, as long as they are bought on the secondary market from investors and not on the primary market, i.e. directly from Member States. The European Court of Justice also confirmed that asset purchases are within the remit of the ECB’s monetary policy.
Is the asset purchase programme monetary financing?
The ECB adheres strictly to the prohibition on monetary financing by not buying in the primary market. It only buys bonds once a market price has been identified; this ensures it does not distort the market pricing of risk. In addition, the ECB laid down a number of further safeguards regarding the nature, amount and timing of its asset purchases.
Has the ECB been the only central bank conducting asset purchases?
Many central banks have used outright purchases, often referred to as quantitative easing, or QE, as part of their monetary policy. They have been employed by the US Federal Reserve System, the Bank of England and the Bank of Japan. Open market operations are a core instrument of central banks, even in normal times. Outright purchases become especially useful when policy interest rates cannot be reduced any further. They can help central banks fulfil their mandate. In the case of the ECB this means maintaining price stability, thereby supporting growth and job creation.
But doesn’t the programme force losses onto national central banks? How is that compatible with a single monetary policy?
Some risks under the programme are not shared across the Eurosystem but remain with the individual national central banks. The ECB is committed to the principle of risk sharing, which is why 20% of purchases fall under the full risk-sharing regime. This mitigates concerns about potential unintended fiscal consequences.
The Statute of the ESCB stipulates that it is the Governing Council which decides how and to what extent losses are shared within the Eurosystem. Internal loss-sharing mechanisms in no way undermine the singleness of our monetary policy. All national central banks and the ECB participate in asset purchases. There is one global amount and purchases are coordinated centrally by the ECB. These are calibrated to maintain price stability in the euro area as a whole, and they take into account the unique institutional structure of the euro area, where a common currency and single monetary policy co-exist with national fiscal and economic policies. This arrangement is tailored specifically to the APP and ensures the highest degree of effectiveness because it takes our institutional structure into account.
Is the asset purchase programme aimed at helping specific countries?
The APP was designed to push inflation and inflation expectations back to levels closer to the ECB’s objective in the euro area as a whole. It does not reduce the debt of any particular country.