- Reuters/Denis Balibouse
- European Central Bank cuts bond-buying programme to €30 billion per month, down from €60 billion previously. The move had been widely expected in the markets. Bond-buying will continue until at least September 2018, but will likely go on for longer. President Mario Draghi says that the ECB could increase quantity of bonds it buys if the eurozone economic outlook becomes less favourable.
The European Central Bank on Thursday announced that it will further taper its bond-buying programme but extended quantitative easing until at least September 2018, as had been widely forecast prior to the decision.
The ECB announced that it will reduce its bond-buying to €30 billion per month, down from the current level of €60 billion per month. The reduction will come into force in January 2018 and QE will continue for nine months longer than previously announced.
The bank left its deposit rate at -0.4%, while its main refinancing rate remained at 0.0%.
The ECB said in a statement: “From January 2018 the net asset purchases are intended to continue at a monthly pace of €30 billion until the end of September 2018, or beyond, if necessary, and in any case until the Governing Council sees a sustained adjustment in the path of inflation consistent with its inflation aim.”
“Today’s monetary policy decisions were taken to preserve the very favourable financing conditions that are still needed for a sustained return of inflation rates towards levels that are below, but close to, 2%,” ECB President Mario Draghi said at a press conference after the decision.
“The recalibration of our asset purchases reflects growing confidence in the gradual convergence of inflation rates towards our inflation aim, on account of the increasingly robust and broad-based economic expansion, an uptick in measures of underlying inflation and the continued effective pass-through of our policy measures to the financing conditions of the real economy.”
Draghi stressed that the bank is “ready” to increase bond buying again in future “if the outlook becomes less favourable, or if financial conditions become inconsistent with further progress towards a sustained adjustment in the path of inflation.”
Draghi was also keen to emphasise that the “recalibration” of its bond-buying programmes should not be described as “tapering” – although this is a minor distinction in the grand scheme of monetary policy.
Throughout his press conference, Draghi trod the line between optimism at an increasingly robust eurozone recovery and the continued presence of downside risks to the bloc’s economic outlook. Claus Vistesen, chief eurozone economist at Pantheon Macroeconomics, described Draghi’s performance as a “good day at the office.”
‘A sea change but a very gentle one’
Asset purchases are set to continue until at least September 2018, but will likely extend beyond that, Vistesen wrote in an email.
“This is a key provision for the ECB, which distinguishes it from the Fed which announced a pre-set ‘taper.’ We do not expect a hard stop for QE in September next year, and sees the ECB buying, albeit at a reduced pace of €15B-to-€20B, until the end of 2018, at least,” Vistesen argues.
“Today’s decision is a sea change but a very gentle one; not a big-bang u-turn in ECB monetary policy. In fact, the QE recalibration the ECB has announced illustrates that the ECB wants to start the exit as cautiously as possible, ideally without seeing the euro appreciate or bond yields increase,” Carsten Brzeski of ING said in reaction to the ECB’s announcement.
The euro dropped sharply on the decisions, falling below the 1.18 level against the dollar, as the chart below illustrates:
- Markets Insider