Taper tantrum only a “remote” possibility after ECB announcement

European-Central-BankThe chances of a taper tantrum after the European Central Bank (ECB) announced a reduction in its asset-purchasing programme yesterday appear to be low, fund firms said.

The ECB extended its quantitative easing (QE) programme to run beyond December, but at a reduced pace of €30 billion worth of purchases a month for nine months from January 2018, rather than the €60 billion as at present.

The bank also kept interest rates unchanged.

Anna Stupnytska, global economist at Fidelity International, said the ECB had successfully communicated in recent months its intention to scale down the asset-purchases programme from next year in an effort to avoid a taper tantrum.

She added that the new QE pace “is in line with consensus and thus should not be a surprise to markets”.

Stupnytska also said: “The euro area recovery is certainly becoming more entrenched, with broad-based growth across countries and sectors of the economy. The euro strength seen so far is unlikely to derail the growth story or pave way for a return of deflationary worries.” 

Julien-Pierre Nouen, chief economic strategist at Lazard Frères Gestion, said Mario Draghi, the ECB president, had been expected to take another step towards the normalisation of monetary policy.

Of the announcement, he said: “This is broadly in line with what the market had come to expect and the prospect of a taper tantrum appears relatively remote.

“As QE works mainly through the amount of assets held by the central bank than by flows, the policy will therefore still be eased, and we do not expect that the tapering to cause much volatility per se.”

Charlie Diebel, head of rates at Aviva Investors, said: “The market has rallied in fixed income and the euro has sold off as there was a hawkish bias to expectations going into the announcement.

“The fact that the ECB will continue to reinvest proceeds for some time after QE ends, adds to the dovish read and in turn should be supportive for risk assets.”

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