European government borrowing rates plummeted to record lows, the euro weakened to an 11-year low against the dollar and stock markets rallied after the ECB launched its landmark bond-buying programme.

The stubbornly stagnant euro zone economy and falling consumer prices in the currency bloc prompted the ECB to unveil a €60 billion euro a month asset-purchase programme to run from March 2015 until the end of September next year.

“In a nutshell, the ECB seems to have taken the bull by the horn,” said Benoit Anne, head of global EM strategy at Societe Generale.

In response, euro - seen as the main channel through which the programme will help lift prices - fell 1.6 per cent to $1.1423 and touched $1.1404, the weakest level since November 2003. The last time the currencies traded one for one was in 2002.

It also fell by more than 1 per cent against the yen and the Swiss franc.

“He took out the bazooka ... It is a big and credible programme,” said David Keeble, global head of interest rates at Credit Agricole in New York.

Only Denmark’s krone fell more as its central bank cut rates a second time this week.

The European Central Bank took the ultimate policy leap on Thursday, launching a government bond-buying programme which will pump hundreds of billions of new money into a sagging euro zone economy.

March launch

The ECB said it would buy government bonds from this March until the end of September 2016 despite opposition from Germany’s Bundesbank and concerns in Berlin that it could allow spendthrift countries to slacken economic reforms.

Together with existing schemes to buy private debt and funnel hundreds of billions of euros in cheap loans to banks, the new quantitative easing programme will pump €60 billion a month into the economy, ECB president Mario Draghi said.

By September next year, more than €1 trillion will have been created.

“The combined monthly purchases of public and private sector securities will amount to €60 billion,” Mr Draghi told a news conference. “They are intended to be carried out until end-September 2016 and will in any case be conducted until we see a sustained adjustment in the path of inflation.”

Bonds will be bought on the secondary market in proportion to the ECB’s capital key, meaning the largest economies from Germany down will see more of their debt purchased by the ECB than smaller peers.

The prospect of dramatic ECB action had already prompted the Swiss central bank to abandon its cap on the franc while Denmark, whose currency is pegged to the euro, was forced to cut interest rates in anticipation of the flood of money.

Will it work?

Mr Draghi said 20 per cent of the asset purchases would be subject to risk-sharing, suggesting the bulk of any potential losses will fall on national central banks. Critics say that calls the euro zone concept of risk sharing into question and countries with already high debts could find themselves with further liabilities.

Euro zone inflation turned negative last month, far below the ECB’s target of close to but below 2 per cent, raising fears of a Japan-style deflationary spiral.

But there are doubts, and not only in Germany, over whether printing fresh money will work.

Most euro zone government bond yields are already at ultra-low levels while the euro has already dropped sharply against the dollar.

Lower borrowing costs and a weaker currency could both help to boost growth but there is a question about how much downside there is for either.

“It is a mistake to suppose that QE is a panacea in Europe or that it will be sufficient,” former US treasury secretary Larry Summers said at the World Economic Forum in Davos on Thursday.

“There is every reason to expect that QE will be less impactful in a context like the present one in Europe than it was in the context of the United States.”

A plunge in the price of oil has thrown central bankers into a spin worldwide. Canada cut the cost of borrowing out of the blue on Wednesday while two British rate setters at the Bank of England dropped calls for tighter monetary policy as inflation has evaporated.

The ECB has already cut interest rates to record lows. Earlier, it left its main refinancing rate, which determines the cost of euro zone credit, at 0.05 per cent.

Agencies