The European Central Bank (ECB) unveiled on 26 October it would reduce its bond-buying programme from €60bn a month to €30bn a month for an initial nine-month period, which would start on January to last by the end of September 2018.
This gradual withdrawal of the quantitative easing programme (QE) – which is the unconventional monetary policy used to calm surging debt costs and stimulate lending to households and businesses – comes as eurozone’s growth flourishes, which according to Mario Draghi (pictured), is proving to be solid and broad based.
The announcement has unleashed markets’ reactions, giving rise to some comments from the financial industry.
With regards to the ECB’s decision on interest rates, Close Brothers Asset Management’s CIO Nancy Curtin said: “Ten years on from the financial crash, the era of quantitative easing is yet to run its course in Europe. Draghi confirmed that the bond buying programme would be tapered, but it has hardly come to an end. This slow, steady and widely predicted approach hopes to rein in the euro from rising further, which is limiting the earnings capacity of European exporters, at the same time as avoiding a European taper tantrum in the markets. Whether one can be achieved without the other remains to be seen.
“Strong economic growth both within and outside of the eurozone has helped ease the central bank into this decision. Recent signs of inflation picking up, and a soft exit from quantitative easing should allay investors’ concerns around the prospect of severe disinflation.”
Lazard Frères Gestion’s chief economic strategist Julien-Pierre Nouen commented they did not expect the tapering to cause much volatility, since the quantitative easing programme works mainly through the amount of assets the ECB holds and not by flows.
Nouen added: “Mario Draghi has once again stressed that the ECB will maintain a very gradual approach to its monetary policy, and that short term rates will not rise before well after purchases have been stopped. The ECB wants to avoid any unwarranted tightening of financial conditions, such as another sharp increase in the euro or long-term interest rates rising too fast. Were these two things to happen, the ECB would try to suppress them by using guidance or tweaking the parameters of its purchases, maybe going as far as buying for longer. On the contrary, if inflation were to accelerate sharply in the next few months, hawks at the ECB might try to hasten the normalization process. Nevertheless, a very accommodative monetary policy and a broadening recovery are supportive of risk assets.”
BrickVest’s CEO Emmanuel Lumineau also commented on the ECB’s decision and pointed: “Today’s announcement is a glowing endorsement of healthy Eurozone growth and falling unemployment, which will more than likely mean that interest rates will stay at historic lows until at least 2019 in order to help financial markets adjust. In contrast to the UK where interest rates are expected to rise for the first time in more than a decade, the eurozone appears to be concerned about low inflation which has consistently remained well below its target.”