ECB extends asset purchases but will reduce levels from April

The European Central Bank (ECB) is extending its asset purchasing for another nine months but from April this will be at a reduced monthly rate of €60 billion down from €80 billion.

According to Howard Archer, chief economist at information provider IHS Markit, the reduced monthly purchase rate could be taken as a sign that stimulus cannot go on forever.

But ECB chief Mario Draghi stated in a press conference: “The sustained presence of the ECB in markets is a key message of [yesterday’s] decision.”   

Archer added that Draghi spent a lot of time in his press conference finding different ways of indicating that the ECB’s move should not be considered as tapering.

This is clearly aimed at trying to avoid a market taper tantrum, similar to what happened in 2013 when the Federal Reserve signaled it was tapering its quantitative easing programme, which caused widespread volatility.

The monthly asset purchase scheme has been extended to run until “December 2017, or beyond if necessary” instead of “March 2017 or beyond if necessary”.

The ECB has also reaffirmed that interest rates will not be rising for a considerable time to come, stating interest rates will “remain at present or lower levels for an extended period of time, and well past the horizon of our net asset purchases.”

David Zahn, head of European fixed income at Franklin Templeton Investments, said: “The ECB feels that we are still somewhat far away from the 2% initial inflation target for 2019, so with that in mind, we would expect the central bank to remain accommodative for some time.”

©2016 funds europe

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