ECB to begin €1 trillion stimulus next week

The decision to pump a total of €1.14 trillion into the eurozone economy was made in January.

Prices across the eurozone have now fallen for three consecutive months, raising the likelihood of a prolonged period of deflation.

ECB President Mario Draghi said the programme would remain until the bloc’s inflation rate is close to its 2 percent target rate.

Quantitative easing (QE) involves central banks buying up government bonds to inject more money into the system - a path trodden in recent years by the US Federal Reserve and the Bank of England in response to the 2008-9 financial crisis. The ECB hopes that putting new money into the financial system will stimulate economic demand.

Elsewhere, the ECB has raised its forecast for the eurozone economy’s growth rate to 1.5 percent for 2015, up from a 1 percent forecast in December last year.

The programme will allow the ECB to buy government bonds, although Draghi told reporters that it would only buy bonds with negative yields if yields are not lower than the deposit rate. This would currently only exclude two-year German government bonds.

“It looks as if at least the ECB is a strong believer in the positive economic impact of its own QE programme,” said ING chief economist Carsten Brzeski. The ECB’s was “much more upbeat than in previous months,” he added.

Since the announcement in January, the euro has fallen to its lowest rate against the US dollar since September 2003 and lost 8 percent of its value against the UK pound.

Meanwhile, the ECB increased its emergency lending facility to Greek banks by €500 million. Draghi told reporters that the ECB was prepared to make it easier for Greek lenders to access its funds once the Greek government returned to implementing the terms of its bailout programme.

"The lending to Greece today is 68 percent of the Greek GDP, which is the highest in the eurozone. In this sense one can really say that the ECB is the central bank of Greece," he said, adding that “the last thing one can say is that the ECB not supporting Greece".

On the eve of the meeting, Draghi and the ECB board received an open letter from former shareholders in the Bank of Cyprus angry that the ECB has propped up Greek banks while allowing Cypriot lenders to collapse.

The Mediterranean island’s second largest lender, Laiki bank, was wound up as part of the Cypriot bailout deal in 2013, while depositors to Laiki bank and the Bank of Cyprus were forced to incur losses of €4.2 billion.

The ECB also kept its headline interest rate unchanged at 0.05 percent.