The South African rand, along with the Russian rouble, the Brazilian real and the Turkish lira, all strengthened against the euro after the European Central Bank (ECB) launched its landmark €60-billion-a-month bond buying programme, the Financial Times reported last week.
The quantitative easing (QE) measure, which mimics earlier US Federal Reserve QE action, saw the South African rand strengthen by 1.1% – the lowest of the four emerging market countries mentioned – with the Russian rouble the highest at 1.4%.
The euro also fell more than 1% against the US dollar after the announcement of the new €1.1-trillion debt-buying measure.
While ECB president Mario Draghi pledged to buy government bonds as part of an asset-purchase programme to counter deflationary pressures, US Standard & Poor’s 500 Index stocks rose in New York and the blue chip DAX stock index hit a new high in Germany, Bloomberg and Deutsche Welle reported.
German broadcaster Deutsche Welle described the QE decision as one that would involve the printing of €60-billion a month, from March until September 2016, to finance large-scale purchasing of public and private assets.
From March, the eurosystem would, Draghi said, begin to buy euro-denominated investment-grade securities issued by euro area governments and agencies and European institutions in the secondary market, and that buying would continue until economic conditions improved.
TheECB, he added, would be buying bonds with maturities spanning two to 30 years.
The Wall Street Journal described the decision as marking the beginning of a new era for the conservative German-modelled ECB, against the background of the eurozone’s $13-trillion economy failing to recover fully from the 2008 global financial crisis.
In November, the eurozone’s unemployment rate of 11.5% was far higher than that of the US and the UK.
Until now, the ECB has largely refrained from QE, relying instead on interest rate cuts and loans to banks as a means of steering new credit to the economy, said observers, who contended that any strengthening of the European economy would help commodity prices, which are currently severely constrained.