Michael Noonan (Limerick City, Fine Gael) | Oireachtas source

The primary objective of the European Central Bank is to maintain price stability within the euro area by implementing monetary policy which is consistent with an inflation rate of below, but close to, 2% over the medium term. Sustained weak inflation rates of less than 1%, despite extremely accommodative monetary policy and forward guidance on interest rates, led the ECB to implement asset purchase programmes beginning in June 2014 in an easing of monetary policy aimed at achieving this price stability mandate.

The ECB's expanded asset purchase programme, which covers sovereign and supranational debt, often referred to as quantitative easing, began on 9 March 2015 when the public sector purchase programme was added to the existing asset-backed securities and third covered bond purchase programmes. A corporate sector bond purchase programme was introduced on 8 June 2016 to further strengthen the pass through of the monetary policy stance to the real economy.

Under quantitative easing, the euro system, comprising the ECB and the national central banks of the euro area, has been purchasing €80 billion of public and private assets per month and plans to do so until at least March 2017 or until inflation returns to levels consistent with price stability.

Quantitative easing is designed to impact the real economy through a number of transmission mechanisms. These include increases in the value of securities and decreases in the cost of borrowing, increase lending by banks, and by providing a signal to consumers that the ECB is committed to meeting its inflation targets, giving an overall increase in consumer confidence.

In December this year, ECB policymakers will decide on the future shape and duration of their €80 billion monthly quantitative easing scheme based on new growth and inflation forecasts.

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