The European Central Bank starts its corporate bond purchases today, as part of its wider €80bn a month of asset purchases, in a bid to kickstart sluggish growth and inflation in the eurozone. The Bank will now cut out the banking middlemen and finance businesses either directly or by buying their debt in the bond market.
Senior European Central Bank officials are optimistic that the new program will help efforts to revive weak economic activity in the 19-country eurozone, many of whose members have fallen short of their growth targets.
Slow eurozone growth has seen inflation slide into negative territory, threatening a dangerous downward spiral of falling prices and wages. The ECB has big expectations for its corporate-bond buying program, which kicks off Wednesday which aims to end the rut of low inflation.
With its corporate bond purchases, the ECB is targeting its QE tool much more precisely at financing conditions for businesses. Any company headquartered or owning offshoots in the eurozone with a high credit rating will be able to tap the ECB for cheap financing, including auto companies, pharmaceutical firms and airlines. The hope is that the companies will use the money to invest, thereby stimulating growth, creating jobs and helping push up prices.
“It’s a game-changer [because] you bring the medicine exactly where you want it to act,” said Vincent Juvyns, global market strategist with J.P. Morgan Asset Management in Brussels.
