European Central Bank Settles on EUR 30 Billion of Monthly Asset Purchases Through at Least September

October 26, 2017

The ECB made several decisions:

  1. The interest rate structure (a zero refinancing rate, a negative 0.40% deposit rate, and a 0.25% marginal lending rate) was not changed, and a promise was made not to lift rates until well past the ending of quantitative stimulus.
  2. The current 60 billion euro pace of monthly asset purchases will be maintained only through December and then halved to EUR 30 billion through September. According to today’s statement, September is the earliest termination point. The asset purchase campaign might extend longer, “if necessary, and in any case until the Governing Council sees a sustained adjustment in the path of inflation consistent with its inflation aim. If the outlook becomes less favorable, or if financial conditions become inconsistent with further progress towards a sustained adjustment in the path of inflation, we stand ready to increase the APP in terms of size and/or duration.”
  3. The principal of maturing securities in the APP will be reinvested.
  4. The main refinancing operations and three-month longer-term refinancing operations will continue through the coming two years.

The tone of today’s statement is quite upbeat about economic growth than inflation, although even on that score officials are more confident than before that a return to target will ensue. However, maintaining a very stimulative monetary policy stance is a necessary condition underlying the likelihood that inflation indeed rises to the target of below but close to 2.0%. “Measures of underlying inflation have ticked up moderately since early 2017, but have yet to show more convincing signs of a sustained upward trend. Wage growth has increased somewhat, but domestic cost pressures still remain subdued overall.” Foreign exchange developments, in other words excessively rapid euro appreciation, poses another possible downside risk to growth and inflation.

Copyright 2017, Larry Greenberg. All rights reserved. No secondary distribution without express permission. 



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