by Macroview ECB keeps holding pattern, but we expect an extension of bond purchases in December Nothing in today’s ECB press conference challenged our view that quantitative easing (QE) will be extended at the bank’s next policy meeting on 8 December. We continue to expect the bank to use this meeting to announce a six-month extension of its QE programme beyond March 2017, with monthly asset purchases maintained at their current pace of EUR80 bn monthly, resulting in EUR480 bn in extra asset purchases, and bringing the total size of the ECB’s current asset-purchase programme since its launch in March 2015 to over EUR2.2 trn in total.ECB chairman Mario Draghi said that neither QE extension nor tapering was discussed at the October meeting, but the bank’s statement was relatively dovish on the outlook for core inflation, suggesting that the ECB is becoming increasingly concerned over the lack of momentum in core prices and that extra easing will be needed for the December staff forecasts to be consistent with the ECB’s mandate. A six-month extension of bond purchases could, according to our estimates, boost inflation by up to 0.3pp even accounting for diminishing marginal benefits and could prove enough to bring inflation back closer to the ECB’s target of 2% by 2019.Crucially, signals from the ECB’s governing council suggest it remains of the view that QE is working.
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Frederik Ducrozet considers the following as important: ECB bond purchases, ECB monetary easing, ECB monetary policy, ECB tapering, Macroview
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ECB keeps holding pattern, but we expect an extension of bond purchases in December
Nothing in today’s ECB press conference challenged our view that quantitative easing (QE) will be extended at the bank’s next policy meeting on 8 December. We continue to expect the bank to use this meeting to announce a six-month extension of its QE programme beyond March 2017, with monthly asset purchases maintained at their current pace of EUR80 bn monthly, resulting in EUR480 bn in extra asset purchases, and bringing the total size of the ECB’s current asset-purchase programme since its launch in March 2015 to over EUR2.2 trn in total.
ECB chairman Mario Draghi said that neither QE extension nor tapering was discussed at the October meeting, but the bank’s statement was relatively dovish on the outlook for core inflation, suggesting that the ECB is becoming increasingly concerned over the lack of momentum in core prices and that extra easing will be needed for the December staff forecasts to be consistent with the ECB’s mandate. A six-month extension of bond purchases could, according to our estimates, boost inflation by up to 0.3pp even accounting for diminishing marginal benefits and could prove enough to bring inflation back closer to the ECB’s target of 2% by 2019.
Crucially, signals from the ECB’s governing council suggest it remains of the view that QE is working. This positive view of QE transmission to financial markets and the real economy has important implications for the policy outlook: if inflation projections continue to undershoot the target in the future, then the ECB is likely to do more of the same, at least initially, rather than reversing course or making radically new choices.
As regards bond scarcity and potential measures to alleviate those concerns, Draghi only referred to the upcoming work of the “relevant committees”. Our best guess is that current criteria will mean that the ECB will come up against constraints on its asset purchases by Q2 2017, forcing the ECB to make a combination of changes to ensure its asset-purchase programme continues to run smoothly.