Draghi’s winding road to rate hike leads to successor’s

For much of the past four years, bond-buying has been the flagship measure

Mario Draghi put the European Central Bank on the road to raising interest rates, though he may never get the chance to complete the journey himself.

Sixteen months before his crisis-marked tenure at the central bank draws to a close, the president has shifted the ECB back toward the old norm of using borrowing costs as the main policy tool.

For much of the past four years, bond-buying has been the flagship measure for reviving inflation and the economy after Draghi found that even negative rates couldn’t do the job alone.

The Governing Council used its June meeting to announce that asset purchases will be ■ ■ ■ ■ Bond buying at €30 billion (Dh128 billion, $35 billion) a month until end of September

Purchases phased out with €15 billion a month in October, November, December

End of net asset purchases remains subject to incoming data Maturing debt reinvested for an extended period after end of net asset purchases. phased out by the end of December, signalling the Eurozone has the economic momentum to put the tool back on the shelf. But it was a pledge to keep interest rates at current record lows “at least through the summer of 2019” that caught investors by surprise, striking down market expectations that borrowing costs might rise as soon as the first half of next year.

That knocked the euro lower. At the same time, the ECB managed to avoid a repeat of the taper tantrum that accompanied the US Federal Reserve’s first mention of tapering of its own programme in 2013.

“Rate guidance is now the ECB’s key policy tool,” said Nick Kounis, an economist at ABN Amro in Amsterdam.