The European Central Bank, ECB, announced today that it will end its bond buying (quantitative easing) program by the end of this year. If incoming data followed its forecasts, then its monthly bond purchase program would be extended through to the final quarter of the year. ECB also pledged to keep interest rates unchanged at current record lows at least through the summer of 2019.
Until now, this quantitative easing (QE) program was scheduled to last until September, carrying monthly purchases of 30 billion euros ($35 billion) of government and private debt. This will now be reduced to 15 billion euros during the last three months of 2018.
The landmark decision sets the euro area up for an exit from years of massive monetary support.
President Mario Draghi will explain the decision in a news briefing at 3:30 p.m. in Riga, Latvia, where the Governing Council met.
With the decision to retire its key crisis-fighting tool, the ECB is betting that the euro-area economy is robust enough to ride out an apparent slowdown amid risks including trade tariffs and nervousness that Italy’s populist government will spark another financial crisis.
The announcement comes only hours after the Federal Reserve raised U.S. interest rates for the second time this year, highlighting how a decade of easy money globally is gradually coming to an end.
The People’s Bank of China opted not to follow the Fed in raising borrowing costs, and the Bank of Japan is expected to maintain its stimulus when it meets on Friday.
Draghi will provide updated economic projections at his news briefing, which may help him address any questions over whether policy makers have acted too hastily given a spate of disappointing data in recent weeks. While almost a third of economists in a Bloomberg survey predicted he’d set an end-date for purchases after the Riga meeting, 46 percent said he’d wait until the next policy session in July.
Communicating an end to quantitative easing would mark a first step toward relinquishing some of the ECB’s unconventional policy tools, which also include negative interest rates.
It is four years to the month since the ECB became the first major central bank to cut one of its key rates below zero. Market expectations are currently for rates to start rising around the middle of next year, and some Governing Council members recently said such an outlook is reasonable.
As policy makers give up net asset purchases as stimulus tool, they’ll stress other measures that will keep their policy stance accommodative, such as the stock of debt bought under QE, reinvestments of maturing bonds and low borrowing costs.
The euro and bond yields dropped after the ECB said it’ll phase out the stimulus tool with 15 billion euros ($17.7 billion) of purchases in each of the final three months of the year.