‘Asset purchases to continue but at reduced amount’

WASHINGTON: European Central Bank (ECB) policymakers have broadly agreed to extend asset purchases at a lower volume, with views converging on a ninemonth extension, said five people with direct knowledge of the discussion.

With asset buys due to expire at the end of the year, policymakers will decide on October 26 whether to prolong stimulus, having to reconcile between the bloc’s best growth run in a decade with an inflation rate that will undershoot the ECB’s target of almost two per cent for years.

The next move, still up for dis- cussion, was intended to signal both the need to cut support given strong growth, while at the same time committing to accommodation for a long time to come, said the sources.

The biggest debate was likely to be whether to keep the programme open ended, giving the ECB the flexibility to extend it once again, or to send a firm signal about the end, they said.

While hawks want the ECB to signal its intent to wind down and end the purchases, policy doves want at least the same type of flexibility the bank has now to extend purchases in case the outlook worsened.

“Whether it’s open or closed ended is going to be the biggest debate,” one person said. “I can see a compromise that we’ll keep it like it is now, so with an end date that could let us extend again if necessary.”

The exact amount of purchases is still up for discussion with views ranging between €25 billion and €40 billion (RM124.8 billion and RM199.7 billion) a month, but the sources said there was consensus that they needed to be sharply reduced from their current €60 billion rate. Reuters