The European Central Bank just called time on its $3 trillion stimulus program

source
Reuters/Kai Pfaffenbach

  • The European Central Bank on Thursday announced plans to end quantitative easing by December.
  • The central bank has undertaken an unprecedented program of stimulus since the eurozone debt crisis.
  • Interest rates remained unchanged at the ECB’s June meeting.
  • The euro slid on the announcement, falling close to 1% from its daily high.

The European Central Bank on Thursday announced plans to end the €2.5 trillion ($3 trillion) bond-buying program known as quantitative easing that it has undertaken since the eurozone debt crisis.

Bond purchases, now running at a maximum of €30 billion ($35.3 billion) a month, will be lowered to €15 billion ($17.65 billion) a month in September before being stopped at the end of December, the ECB said.

“The Governing Council anticipates that, after September 2018, subject to incoming data confirming the Governing Council’s medium-term inflation outlook, the monthly pace of the net asset purchases will be reduced to €15 billion until the end of December 2018 and that net purchases will then end,” the ECB said in a statement.

Elsewhere, the central bank left its interest rates unchanged, meaning a deposit rate of -0.4%.

It said it expected rates to remain at their current levels “at least through the summer of 2019,” adding that rates would stay put “as long as necessary to ensure that the evolution of inflation remains aligned with the current expectations of a sustained adjustment path.”

“We didn’t discuss when to raise rates,” ECB President Mario Draghi said in a press conference, signalling that a rate hike remains a distant possibility.

“Today’s monetary policy decisions maintain the current ample degree of monetary accommodation that will ensure the continued sustained convergence of inflation towards levels that are below, but close to, 2% over the medium term,” he added.

Draghi, however, emphasised that the direction of monetary policy could change at any time.

“The Governing Council stands ready to adjust all of its instruments as appropriate to ensure that inflation continues to move towards the Governing Council’s inflation aim in a sustained manner,” he told reported.

The euro slipped a little against the dollar on the news, falling about 0.35% on the day, to €1.1751 as of 1 p.m. BST (8 a.m. ET), as the chart below shows:

Screen Shot 2018 06 14 at 12.58.36

source
Markets Insider

Market reaction was reasonably subdued, as the announcement about quantitative easing was widely expected.

“For the first time in a long time, the statement accompanying the interest rate (non)decision is altered significantly compared to the April statement. As expected, the central bank is signalling an end to QE later this year via a three-month taper, albeit with an optionality to change position if the data deteriorates,” Claus Vistesen, the chief eurozone economist at Pantheon Macroeconomics, said in an email.

The ECB shifts its policy meeting from Frankfurt, Germany, to a eurozone capital once a year, and Thursday’s gathering is being held in Riga, Latvia.