ECB cagey about lifting rates in 2017

European Central Bank policy makers considered the question of whether interest rates could rise before their bond-buying programme comes to an end, sources have said.

Governing Council members meeting last week exchanged views on an exit from unconventional stimulus, sources said.

The council didn’t discuss any specific scenario or timeline and hasn’t made any formal decisions on a strategy. An ECB spokesperson declined to comment.

After years of extraordinary stimulus to combat economic distress and the threat of deflation, a steadily improving recovery is finally giving monetary officials room to consider normalising policy by raising interest rates, currency at or near zero.

If raising rates before the end of QE were to be implemented, it would clash with the guidance on timing of rate hikes that ECB President Mario Draghi has given since March 2016, when he lowered the deposit rate.

“The Governing Council expects the key ECB interest rates to remain at present or lower levels for an extended period of time, and well past the horizon of our net asset purchases.”

Some market indicators point to the possibility of a rate hike in 2018 and BNP Paribas has predicted the deposit rate will be increased this September. QE is currently intended to run until at least the end of this year, and most economists surveyed by Bloomberg before the last policy decision said they expect tapering to last until at least mid-2018.

Part of the ECB’s reasoning for exploring the possibility of raising rates before finishing its bond-buying programme lies with the structure of the euro-area economy, the sources said. – Bloomberg