ECB to con­sider cut­ting QE flow in half next year

The Daily Star (Lebanon) - - BUSINESS -

Euro­pean Cen­tral Bank of­fi­cials are con­sid­er­ing cut­ting monthly bond buy­ing by at least half start­ing Jan­uary and keep­ing their pro­gram ac­tive for at least nine months, ac­cord­ing to of­fi­cials fa­mil­iar with the de­bate.

Re­duc­ing quan­ti­ta­tive eas­ing to 30 bil­lion euros ($36 bil­lion) a month from the cur­rent pace of 60 bil­lion euros is a fea­si­ble op­tion, said the of­fi­cials, who asked not to be iden­ti­fied be­cause the de­lib­er­a­tions are pri­vate. That re­duced flow would match ex­ist­ing pre­dic­tions from econ­o­mists at in­sti­tu­tions in­clud­ing ABN Amro Bank NV and Bank of Amer­ica Mer­rill Lynch.

Pol­i­cy­mak­ers led by Pres­i­dent Mario Draghi are be­com­ing in­creas­ingly con­fi­dent that they can agree on Oct. 26 to the specifics of how much debt the euro-area’s cen­tral banks will buy in the com­ing months. Af­ter more than 2 1/2 years of try­ing to re­vive the re­gion’s econ­omy through bond pur­chases, some gov­er­nors see the re­cent pe­riod of ro­bust growth as a rea­son to rein in the sup­port. Oth­ers are con­cerned that in­fla­tion re­mains too weak.

“The pack­age seems to mean that yes, the ECB is tak­ing a step down, but there is enough in terms of com­mu­ni­ca­tion and guid­ance to keep mar­kets calm and make sure fi­nan­cial con­di­tions re­main easy,” said Nick Kou­nis, an econ­o­mist at ABN Amro who is based in Am­s­ter­dam. “There seems to be a con­sen­sus on this com­ing to­gether, a ma­jor­ity. Even some of the more hawk­ish mem­bers un­der­stand that you have to wind down QE very grad­u­ally.”

While gov­er­nors are split on the need to iden­tify an end date for pur­chases, a pledge to keep buy­ing bonds un­til Septem­ber – with the pro­viso that it could be ex­tended if needed – may of­fer grounds for com­pro­mise, the of­fi­cials said.

Any changes to the sum and time frame of QE eas­ing would still fit into the ECB’s present guid­ance on mone­tary pol­icy, a prom­ise to a “sus­tained ad­just­ment in the path of in­fla­tion con­sis­tent with its in­fla­tion aim.” It also pledges that if “the out­look be­comes less fa­vor­able, or if fi­nan­cial con­di­tions be­come in­con­sis­tent with fur­ther progress to­ward a sus­tained ad­just­ment in the path of in­fla­tion, the Gov­ern­ing Coun­cil stands ready to in­crease the pro­gram in terms of size and/or du­ra­tion.”

Pol­i­cy­mak­ers have yet to of­fi­cially dis­cuss op­tions, and aren’t sched­uled to meet again as a group un­til Oct. 25, in prepa­ra­tion for their de­ci­sion the next day.

Such meet­ings have some­times pro­duced out­comes that haven’t been clearly en­vis­aged in ad­vance. – Bloomberg News

Gov­er­nors are split on the need to iden­tify an end date for pur­chases

Pol­i­cy­mak­ers have yet to of­fi­cially dis­cuss op­tions.

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