by Tapering is not an immediate issue for the ECB, which we believe is much more likely to announce an extension of QE and measures to deal with the scarcity of bonds it can purchase. Spokespersons for the ECB have been anxious to beat back a Bloomberg story that the bank was attempting to “build a consensus” around the tapering of its bond purchases, saying the Governing Council (GC) had not even discussed this issue at its last policy meeting in September.The timing of the story is a surprise as ECB task forces are supposed to be working on an extension of its quantitative easing scheme, not a tapering.But in our view, QE tapering will not start before Q4 2017, and we still expect the ECB to announce that asset purchases to be extended by six months at the same EUR80 bn monthly pace until September 2017, along with technical measures to deal with bond scarcity.To be clear, any decision by the ECB to cease QE, when it comes, will be based on a “a sustained adjustment in the path of inflation” as stated by the GC at every meeting since March 2015, and asset purchases will likely be wound down gradually rather than come to a sudden stop.It could be argued that the leaks were part of a broader ECB communication strategy, a trial balloon to prepare markets for QE tapering when it does happen.
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Frederik Ducrozet considers the following as important: ECB bond purchases, ECB quantitative easing, ECB staff forecasts, ECB tapering, Macroview
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Tapering is not an immediate issue for the ECB, which we believe is much more likely to announce an extension of QE and measures to deal with the scarcity of bonds it can purchase.
Spokespersons for the ECB have been anxious to beat back a Bloomberg story that the bank was attempting to “build a consensus” around the tapering of its bond purchases, saying the Governing Council (GC) had not even discussed this issue at its last policy meeting in September.
The timing of the story is a surprise as ECB task forces are supposed to be working on an extension of its quantitative easing scheme, not a tapering.
But in our view, QE tapering will not start before Q4 2017, and we still expect the ECB to announce that asset purchases to be extended by six months at the same EUR80 bn monthly pace until September 2017, along with technical measures to deal with bond scarcity.
To be clear, any decision by the ECB to cease QE, when it comes, will be based on a “a sustained adjustment in the path of inflation” as stated by the GC at every meeting since March 2015, and asset purchases will likely be wound down gradually rather than come to a sudden stop.
It could be argued that the leaks were part of a broader ECB communication strategy, a trial balloon to prepare markets for QE tapering when it does happen. Alternatively, the leaks could be aimed at managing expectations ahead of the 8 December policy meeting, drawing lessons from the disappointment that greeted the policy measures unveiled in late 2015. The leaks could also be a superficial concession to the policy hawks ahead of a decision to extend QE.
All in all, the ECB is very unlikely to trigger a premature, unwarranted tightening of monetary conditions for now. The ECB staff is expected to extend its macro projections to 2019 at the 8 December meeting. The staff’s long-term inflation forecasts could be revised slightly higher (from 1.6% for 2018 HICP and 1.5% for core HICP), but they are likely to remain below target, providing ample justification for the ECB to maintain an ultra-loose policy stance and to rule out a premature tightening.