The Indian Express (Delhi Edition)
ECB to scale back asset buys as it extends to end of 2017
Markets had expected buys to remain at €80 bn a month
THE EUROPEAN Central Bank caught financial markets offguard on Thursday by announcing it would trim asset buys from April next year, even as it reserved the right to increase purchases again if the euro zone’s recovery faltered.
The ECB said it would cut monthly purchases to 60 billion euros from the current 80 billion euros but extend the buys until the end of 2017. Markets had expected purchases to stay at 80 billion but only for 6 more months, suggesting a compromise between hawks and doves in the Governing Council.
The euro initially jumped to a three-week high after the announcement, but quickly retreated to be flat on the day. Bond yields across the single currency area also rose, but pared gains later. “The bank has extended its quantitative easing programme until December which is more than what the market was expecting,” said Naeem Aslam, chief market analyst at Thinkmarkets.
“However, the bank is going to reduce their firepower after March and will only be purchasing 60 billion. So you can say that the bank is tapering in a more dovish way.” European Central Bank President Mario Draghi made clear, however, that he was not offering an outright windingdown of the programme. “There was no discussion of tapering today,” he said at a news conference. “A sustained presence is also the message of the decision.”
The bank was also firm about the new plan could and would be reversed if required. “If, in the meantime, the outlook becomes less favourable or if financial conditions become inconsistent with further progress towards a sustained adjustment of the path of inflation, the Governing Council intends to increase the programme in terms of size and/or duration,” Draghi said. “Uncertainty prevails everywhere ... This is the reason for that sentence in the introductory statement,” he said after a decision he called “pragmatic and flexible”.