European Central Bank (ECB) President Mario Draghi gave more details of the bank's asset purchase programs on Thursday, but left markets uneasy by failing to give clear guidance on their size.
Speaking at a press conference following the ECB's monetary policy decision, where it kept rates on hold, Draghi revealed that it would start buying covered bonds from the middle of October, and asset-backed securities (ABS) in the fourth quarter.
Asset-backed securities are pooled loans put together by banks which have been made to companies or consumers, including mortgages and credit cards. The bundled loans are then sold on to other banks but also to insurers, pension funds.
These measures - which are the latest in a host of stimulus measures launched by the ECB - will last for at least two years, and will have a "sizeable" impact the ECB's balance sheet, Draghi said.
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"This program is orientated to boost lending to SMEs (small and medium-sized enterprises)," Draghi said at a press conference in Naples, adding that the ABS buying plan is designed to be "simple and transparent".
'Extreme irritation'
But analysts were left scratching their heads after the bank offered little reassurance on the size of the program and did not hint at a full-blow quantitative easing plan.
"In the past Draghi had signaled that he would like the ECB's balance sheet to return to the peak seen in 2012 (which would imply an additional 1.1 trillion euros), however, he played down the notion of returning to past peaks – a sign that the governing council either did not support the notion, or that it understands that it may not be possible," European economist at Schroders, Azad Zangana, said in a note following the press conference.
Zangana highlighted that the available stock of ABS was approximately 250 billion euros - whereas the available stock of covered bonds was approximately 650 billion euros.
"However, these figures also include sub-standard issuance, which the ECB has ruled out buying," he said. "We believe the ECB is aware of this problem, which is why it has not set a purchase target."
European equity markets fell sharply across the board as Draghi spoke, with banking stocks particularly badly hit. The euro strengthened slightly against the euro.
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Meanwhile, Marc Ostwald, strategist at ADM Investor Services, said investors were left disappointed because all Draghi offered was an air of "extreme irritation".
Some details
The ECB revealed that both senior and guaranteed mezzanine tranches of ABS would be purchased, in primary and secondary markets. Senior tranches of asset backed securities are considered to be less risky, as the class of debt is safer and more protected in the case of a default, whereas mezzanine tranches are riskier.
The new measures would help strengthen forward guidance on rates and push the balance sheet of the central bank "towards the size it was in 2012", Draghi said, adding that getting inflation rates closer to 2 percent was the bank's ultimate goal.
The bank's balance sheet has shrunk by around 1 trillion euros ($1.26 trillion) since 2012 and is now at roughly 2 trillion euros.
Junk-rated countries
Draghi said the ABS program will be as "inclusive as possible", but also prudent. As such, the central bank said it would buy bundles of bank loans from countries like Greece and Cyprus, with "junk" ratings, as long as they meet certain criteria.
The detail of the programs came after the ECB kept interest rates at record lows on Thursday, after last month's shock decision to cut them further and launch fresh stimulus measures.
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Draghi surprised the market in September by cutting the bank's main refinancing operations to a new low of 0.05 percent. The rate on the marginal lending facility was also decreased and the rate on the deposit facility was cut further into negative territory.