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Financial News: ECB Unveils QE Exit Plan Hoping To End

ECB Unveils QE Exit Plan Hoping To End Bond Buys In December

06/14/2018 - 08:29:00 (RTTNews)

(RTTNews) - The European Central Bank plans to start exiting its massive quantitative easing by the end of this year, despite strong headwinds clouding the outlook for the single currency economy. "The Governing Council anticipates that, after September 2018, subject to incoming data confirming the Governing Council's medium-term inflation outlook, the monthly pace of the net asset purchases will be reduced to EUR 15 billion until the end of December 2018 and that net purchases will then end," the bank said in a statement on Thursday.

The bank also tweaked its guidance on interest rates, suggesting that they could remain at their present level at least till the summer of 2019 and beyond, if necessary, "to ensure that the evolution of inflation remains aligned with the current expectations of a sustained adjustment path."

Expectations that ECB is likely to set out a plan of exit this month were boosted after ECB Chief Economist Peter Praet sounded highly confident regarding the Eurozone economic outlook during a speech last week.

The Governing Council, led by ECB President Mario Draghi, left the key interest rates unchanged after the policy session in the Latvian capital Riga, in line with economists' expectations.

The main refi rate is currently at a record low zero percent and the deposit rate at -0.40 percent. The marginal lending facility rate is 0.25 percent.

Policymakers "undertook a careful review of the progress towards a sustained adjustment in the path of inflation, also taking into account the latest Eurosystem staff macroeconomic projections, measures of price and wage pressures, and uncertainties surrounding the inflation outlook," the bank said.

"Today's monetary policy decisions maintain the current ample degree of monetary accommodation that will ensure the continued sustained convergence of inflation towards levels that are below, but close to, 2 percent over the medium term," the bank said.

The ECB intends to maintain its policy of reinvesting the principal payments from maturing securities for an extended period of time after the end of the net asset purchases, and in any case for as long as necessary to maintain favorable liquidity conditions and an ample degree of monetary accommodation.

Draghi is set to hold his press conference at 8.30 am ET in Riga, when he will unveil the latest ECB Staff projections and speak about the discussion that took place for deciding the stimulus exit plan. Reporters are also likely to intensely quiz him regarding the political uncertainty in his home country, Italy. ECB policymakers had earlier signaled that they will discuss the way to end quantitative easing in summer. In the March meeting, the ECB tweaked the forward guidance by dropping the easing bias on asset purchases, after a clear divide in the Governing Council surfaced over the past few policy sessions.

The bank's EUR 2.5 trillion bond-buying has been in place since 2015.

At the start of this year, it was expected that the euro area expansion would sustain its strong momentum through the year, supporting ECB's exit plans.

However, political uncertainty in Italy, higher oil prices and trade war concerns cropped up later on, posing risks to the euro area economic outlook. Another worry that may have fueled the need for an exit is that the ECB is running out of quality assets to buy. Further complicating the picture is the imminent leadership change at the ECB. Both Draghi and Praet are set to leave the bank next year.

Meanwhile, central banks across the world has started tightening with the US Fed raising its interest rate for the second time this year on Thursday. Several central banks in Asia have also hiked interest rates in recent months.

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