The ECB is staying on the dovish side and does not seem to be in a hurry to move towards tapering
The European Central Bank has kept in place a pledge to step up its €60bn-a-month quantitative easing programme if the eurozone economy worsens, despite calls from the bank’s hawks to scrap the commitment because of improving growth in the region.
The ECB’s decision had been eagerly anticipated because withdrawing the pledge would have been seen as an indicator of the bank’s readiness to roll back QE at a time when central banks around the world are seeking to return monetary policy to normal despite relatively feeble inflation.
While markets expect the ECB to make decisions on next year’s pace of asset purchases at its September 7 meeting, they are impatient for further guidance, particularly because QE has made the bank the biggest player in eurozone bond markets.
Hawks on the governing council, including policymakers from Germany, think the bank needs to do more to convince markets it is serious about winding down its bond buying spree in 2018.
The markets interpreted remarks by Mr Draghi in June about re-emerging reflationary forces as a sign that the ECB was about to scale down QE. But the ECB later claimed that interpretation was mistaken. It said Mr Draghi’s June speech was intended to provide reassurance that the bank would keep much of the stimulus in place until the region’s recovery was clearly self sustaining.
The outlook for the eurozone has improved, with some analysts expecting growth of about 2 per cent this year, the fastest rate since 2015. But a majority of the governing council still thinks the economy needs the ECB’s support in order to return to full health.
Complicating the ECB’s task, eurozone inflation fell to just 1.3 per cent for the year to June, down from 1.4 per cent in May and well below the bank’s target of just under 2 per cent.
The European Central Bank has kept in place a pledge to step up its €60bn-a-month quantitative easing programme if the eurozone economy worsens, despite calls from the bank’s hawks to scrap the commitment because of improving growth in the region.
The ECB’s decision had been eagerly anticipated because withdrawing the pledge would have been seen as an indicator of the bank’s readiness to roll back QE at a time when central banks around the world are seeking to return monetary policy to normal despite relatively feeble inflation.
While markets expect the ECB to make decisions on next year’s pace of asset purchases at its September 7 meeting, they are impatient for further guidance, particularly because QE has made the bank the biggest player in eurozone bond markets.
Hawks on the governing council, including policymakers from Germany, think the bank needs to do more to convince markets it is serious about winding down its bond buying spree in 2018.
The markets interpreted remarks by Mr Draghi in June about re-emerging reflationary forces as a sign that the ECB was about to scale down QE. But the ECB later claimed that interpretation was mistaken. It said Mr Draghi’s June speech was intended to provide reassurance that the bank would keep much of the stimulus in place until the region’s recovery was clearly self sustaining.
The outlook for the eurozone has improved, with some analysts expecting growth of about 2 per cent this year, the fastest rate since 2015. But a majority of the governing council still thinks the economy needs the ECB’s support in order to return to full health.
Complicating the ECB’s task, eurozone inflation fell to just 1.3 per cent for the year to June, down from 1.4 per cent in May and well below the bank’s target of just under 2 per cent.
