The European Central Bank (ECB) is to extend its quantitative easing (QE) programme beyond next March for the rest of the year, but at a lower level for the remaining nine months.
The bank will continue purchasing €80bn per month of bonds until March and subsequently prolong its assets purchases until the end of 2017 at a lower rate of €60bn. Mario Draghi, ECB president, said the nine-month extension to the bond-buying programme sent a message that the ECB would remain active on the markets “for a long time”.
However, he insisted that the reduction differed from the US Federal Reserve move in 2013 to “taper” its own QE programme, which at the time unsettled markets. “There is no question about tapering. Tapering has not been discussed today,” Draghi stressed.
Instead, the ECB was reducing its monthly purchases in response to the fact that a “deflation risk has largely disappeared”, although as projected eurozone inflation will still be only 1.7% in 2019 and below the ECB’s medium term target “we have to persist”. The ECB also expanded the range of bonds it is able to buy under its QE programme.
The ECB president also described the eurozone recovery as “moderate but firming” and risks were still tilted toward the downside, which meant the ECB could return to €80bn of purchases a month if necessary.
“Despite the magic ‘taper’ word, it’s clear that the ECB is planning a longer but leaner period of QE, and the net effect is an additional €60bn of money-printing over what had been expected,” commented David Lamb, head of dealing at money transfer service FEXCO Corporate Payments.“Coming so soon after the chaos of the Italian referendum result, the announcement is an odd hybrid of hawk and dove.
“Above all it shows that the ECB remains acutely aware of the need to keep the eurozone economy in intensive care for at least another year. None of which will boost the euro’s appeal to investors, leaving the single currency to flail against both sterling and the dollar in the medium term.”
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