June 14, 2018:
>>The European Central Bank could decide to announce the end its quantitative easing programme on Thursday.
>>Such a move would end years of post euro-crisis stimulus.
>>The ECB is expected to argue that its €2.55 trillion ($3 trillion) bond-buying scheme has done its job in bringing the 19-member currency bloc back from the brink of collapse.
The European Central Bank will debate on Thursday whether to end its huge asset purchases by year-end, in what would be its biggest step towards dismantling crisis-era stimulus credited with pulling the euro zone economy out of recession.
Financial investors are coming to terms with the end of a decade of easy money from the world’s top central banks, with the Federal Reserve on Wednesday raising interest rates for a seventh time in 3-1/2 years in a further shift from policies used to battle the 2007-2009 financial crisis and recession.
Meeting as growth is slowing and political populism threatens to set off market turbulence, the ECB is expected to argue that its 2.55 trillion euro ($3.00 trillion) bond-buying scheme has done its job in bringing the 19-member currency bloc back from the brink of collapse.
Whether policymakers take the actual decision at their meeting in Riga on Thursday or hold off until July appears secondary as they have long argued that the scheme, commonly known as quantitative easing (QE), should be concluded and the policy focus shift to the expected path of interest rates.
The biggest complication could be the increasingly murky economic outlook, weighed down by a developing trade war with the United States, a populist challenge from Italy’s new government and softening export demand.
But these factors could actually hasten the ECB’s decision rather than hold it back as the bank has little policy firepower left and a further weakening of the outlook could make a later exit more difficult.
“We believe the ECB may be in a hurry to close the QE chapter,” Bank of America Merrill Lynch said in a note to clients. “We think this is essentially political, as the ECB would not want its monetary policy to be affected by claims of supporting or conversely impairing the new policy course in Italy.”
The hawks at the European Central Bank are making their presence felt. They want the policy meeting in Latvia on June 14 to be a “live” meeting for deciding on the end of quantitative easing, rather than yet another showcase for stalling and delay. And it looks likely they’ll get their way – Chief Economist Peter Praet said in a speech in Berlin on Wednesday that policy makers will have to assess the matter.
This development has been a long time coming, and it’s a mark of how much the European economy has improved. But this does not mean ECB stimulus will, or should, stop. A renewed selloff in shorter-dated Italian bonds shows the central bank must tread very carefully.
The time is right to decide on ending QE – this is just the first stage in a process of eventually returning to positive interest rates. The current 30 billion euro ($35 billion) monthly buying program expires in September, and the strength of the economy makes it extremely difficult for policy makers to backpedal on the tapering that they’ve already signaled. What’s up for grabs is the timing and amount of the tapering.
The European Central Bank reaffirmed it will end its €2.6 trillion stimulus programme this year.
The bank has said it will phase out by year-end its bond-buying stimulus program for the 19 countries that use the euro, and that interest rates will then stay on hold “through the summer” of 2019.
h/t Digital mix guy
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