ECB of­fi­cials con­sider 9-month QE cut in Jan­uary


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

Re­duc­ing quan­ti­ta­tive eas­ing to €30 bil­lion (1.17 tril­lion baht) a month from the cur­rent pace of €60 bil­lion 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 two and a half 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 quan­ti­ta­tive eas­ing (QE) 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 favourable, 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 pro­gramme in terms of size and/or du­ra­tion.”

Pol­icy mem­bers 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.

The euro was lit­tle changed on the day at $1.1830 (39.2 baht) at 10.08am in Frank­furt yes­ter­day. Ger­man bund yields fell the most in al­most three weeks as gov­ern­ment bonds rose across the euro area.

The in­sti­tu­tion’s chief economist Peter Praet has hinted on sev­eral oc­ca­sions that he would pre­fer to al­low QE to con­tinue at a slower pace for longer if mar­kets stay calm, ar­gu­ing that a sub­stan­tial amount of aid is still needed to spur in­fla­tion to­ward the ECB’s goal of run­ning in­fla­tion just be­low 2%.

Mr Praet said this week that of­fi­cials should con­sider mak­ing pub­lic some of the de­tails on how ma­tur­ing debt bought un­der QE is rein­vested.

“Cru­cially, the base­line sce­nario for fu­ture in­fla­tion re­mains con­tin­gent on easy fi­nanc­ing con­di­tions, which, to a large ex­tent, de­pend on the sup­port of mon­e­tary pol­icy,” he said at an event in Wash­ing­ton on Thurs­day. The Gov­ern­ing Coun­cil will “re­cal­i­brate its in­stru­ments ac­cord­ingly, with a view to de­liv­er­ing the mon­e­tary pol­icy im­pulse that re­mains nec­es­sary to se­cure a sus­tained ad­just­ment in the path of in­fla­tion.”

In the mean­time, Mr Draghi said in Wash­ing­ton that the ECB’s prom­ise that in­ter­est rates will re­main low “well past” bond-buy­ing is “very, very im­por­tant.”

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