Draghi Begins ECB Monthly Bond Spend Exceeding Gates's Fortune

  • Settlement of 80 billion-euro purchases will start April 1
  • Negative inflation rate in March underscores ECB challenge

The European Central Bank’s expanded buying of bonds will take effect on Friday as Mario Draghi wields the institution’s balance sheet more than ever before to fight the threat of deflation.

Settlement of 80 billion euros ($91 billion) a month of purchases -- a third more than the ECB was previously spending -- will start on April 1. Officials might have placed bids earlier this week, though a spokesman for the central bank declined to comment on the matter.

“It’s certainly a huge amount, and I guess this is what they have to do to try and get the size of the balance sheet up to the level that they want,” said Azad Zangana, an economist at Schroders Investment Management in London, which manages about 314 billion pounds ($451 billion) in assets. “It’s hard to get a good feeling of how much they’re likely to buy straight away, but we do obviously expect them to be in the market.”

Draghi’s revised timetable suggests a planned total of about 1.74 trillion euros of purchases -- more than the annual gross domestic product of either Italy or Spain.

This marks a new chapter in the ECB’s history, deepening what Draghi described to lawmakers in September 2014 as its “transition” from an institution passively providing credit to one with a “more active and controlled” management of its balance sheet.

Unveiling the stimulus move in March, Draghi reiterated that quantitative easing will run for another year, “or beyond, if necessary” to spur inflation. The extent of his institution’s challenge was emphasized on Thursday in data that showed a second month of annual declines in consumer prices across the 19-nation euro region.

At 80 billion euros, the ECB’s member central banks are now spending more on debt every month than the fortune of Bill Gates, the world’s richest man. It’s also about four-fifths of the development, assembly and a decade of running costs for the International Space Station.

Zangana at Schroders observes that Draghi’s “transition” in ECB policy may still have further to run.

“They had to look for alternative assets if they were going to meet their target of inflating the balance sheet,” he said. “It wouldn’t surprise me if in the future they had to look at even more assets, be it the inclusion of banking debt as well in the mix, or even moving on to equities more generally.”

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