ECB faces year of living uncertainly after conclusion of QE

FRANKFURT: The European Central Bank (ECB) is on a slow walk toward concluding four years of quantitative easing, and that challenge might look easy compared with what comes next.

While policy makers are comfortable with market expectations for bond purchases to end this year, the bigger spectre of 2019 looms large.

That’s when the governing council might dare to actually withdraw stimulus for the first time since 2011 with one or more interest-rate increases, just as President Mario Draghi makes way for a successor whose identity could be unresolved until well into next year.

Rate hikes against the backdrop of a maturing economic expansion – and a potential global trade war – will be a fraught task for the ECB, which has twice aborted a change of course since the 2007 financial crisis. But the doubt swirling around the future leadership of an institution whose president drove such expansionary monetary policy clouds the outlook even further for markets.

“There is very little visibility for investors from the second half of next year onward,” said Marchel Alexandrovich, an economist at Jefferies in London.

“It’s not just that there are very few templates for what happens next, but also that there will be new actors on the stage.”

Market pricing shows investors expect interest rates on threemonth loans between banks to rise less than 20 basis points by June 2019 and about 40 basis points by the end of the year, which could mean the ECB’s deposit rate rising to zero from -0.4%.

That’s subject to considerable uncertainty though, heightened by the ECB’s reluctance to discuss anything but its next tweak to policy language.

The Governing Council is currently focused on how to communicate the end of its asset-purchase programme, which officials accept will be brought to a halt by the end of this year, according to euro-area officials familiar with the matter. — Bloomberg