Draghi refuses to call end to ECB crisis measures Central bank extends QE until September 2018 but halves pace


(FT) – The European Central Bank confounded monetary hawks by extending its economic stimulus programme until at least September next year, pushing down the euro as investors digested Mario Draghi’s refusal to call the end to emergency crisis-era measures. Although the ECB announced its stimulative bond purchases will be halved to €30bn a month, the commitment to keep the programme open-ended sent European shares higher as markets anticipated access to cheap money for longer. The ECB decision had been eagerly awaited, with many in Germany pushing Mr Draghi to set a firm end date to the €2.1tn programme amid increasing signs the eurozone economy’s growth has become stronger and more sustained.

The ECB has been the most active investor in the region’s bond markets since the scheme, known as quantitative easing, began in early 2015. Under the plan agreed on Thursday, central bankers will continue to spend €60bn a month on buying mostly government and some corporate debt through to the end of the year before halving their purchases. But instead of announcing a final date for bond buying, something the ECB did not do before the eurozone crisis, the bank said it stood ready to extend QE beyond September — or even raise the level of monthly purchases should conditions worsen again.

It also stuck to its line about keeping interest rates at record low until “well past” the end of QE. ECB extends QE programme Play video The political reaction in Germany, where years of negative interest rates and economic stimulus has caused rising anger among economists worried about inflation and savers facing tiny returns on their nest eggs, was surprisingly muted. Berlin has recently scaled back its criticism of Mr Draghi amid hopes the head of Germany’s Bundesbank Jens Weidmann could succeed him in 2019. Mr Draghi said the changes announced on Thursday were not a “tapering” but a “downsize”, adding QE was “not going to stop suddenly”.

He admitted some on his governing council wanted a swifter exit to a programme that is set to enter its fourth year. As many as four of the 25-member council wanted more precision about when QE will end, according to two people familiar with the deliberations. More than that wanted the ECB to focus less on QE and more on its overall monetary policy stance in its communications than it did. Carsten Brzeski, economist at ING-DiBA, said the “very gentle” exit plan “illustrates that the ECB wants to start the exit as cautiously as possible, ideally without seeing the euro appreciate or bond yields increase”. The euro fell 1 per cent to just under $1.17, after hitting a five-session high in the run-up to the announcement, as analysts put the emphasis on the gradual pace of the scaling back of stimulus.

After the pressure earlier in the week on eurozone government debt, sovereign bonds were back in demand after the ECB statement lacked any hawkish surprises. The yield on Germany’s 10-year Bund fell 7 basis points to 0.41 per cent. France’s equivalent paper is yielding 0.850 per cent, down 4.1bp. The region’s stock markets were also buoyed. Euro Stoxx 600 rose 1.1 per cent, while Frankfurt’s Xetra Dax 30 was up 0.3 per cent. London’s FTSE 100 gained 0.4 per cent. Mr Draghi hailed the “muted” reaction of investors despite the “importance” of the announced changes to QE. “Our communication to the market has been really effective,” he said. Recommended FT View: ECB maintains its skilful balancing act World blog: ECB rates decision — as it happened Eurozone bonds rally as

ECB extends bond buying The ECB’s slow taper suggests the central bank will keep interest rates at their current record lows until 2019 — highlighting the gulf in the monetary policies between the eurozone and the US where the Federal Reserve has already started to raise rates. The ECB reiterated that rates would remain at their present levels “for an extended period of time, and well past the horizon of the net asset purchases”. The bank left its benchmark main refinancing rate at zero. It will continue to charge a levy of 0.4 per cent on a portion of deposits parked in its coffers. Since the spring of 2015, the eurozone’s central bankers have bought €2.1tn-worth of assets in a bid to boost growth and rid the region of the threat of a serious bout of falling prices and weakening demand.

The programme is viewed as one of the reasons why the eurozone’s economic performance has been so strong this year. Output has risen, unemployment is at a post-crisis low and Mr Draghi has declared victory in the bank’s battle with deflation. However, inflation — at 1.5 per cent in the year to September — continues to fall short of the ECB’s target of just under 2 per cent. The governing council did not discuss the composition of its bond purchases. But Mr Draghi denied claims that the central bank could not credibly commit to doing more because it would soon run out of assets to buy. “Our programme is flexible enough that we can adjust its size,” he said. The long and noisy road toward normal monetary policy

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