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--ECB Asset Purchases Could Be Extended To No Longer Than Year End
--Governing Council Sanguine Over Euro Strength Vs Dollar
By Christian Vits
FRANKFURT (MNI) - The European Central Bank's Governing Council will likely
focus on its March meeting to decide whether to alter the wording of its current
forward guidance and wait until June before announcing an end-date for its asset
purchase programme, Eurosystem sources told Market News.
In March, the ECB will get the next assessment about growth and inflation
for this year through to 2020, paving the way to communicate its way forward.
"The resistance to a change in the wording with respect to the forward
guidance has been remarkably strong from (ECB President Mario) Draghi and (Vice
President Vitor) Constancio," one source said.
"The extent of change has been the alteration -- which is documented in the
accounts -- to say that the wording will be revisited at the beginning of the
new year," he added.
"There will be -- if at all -- only minor changes in the wording before
March," the first source said.
"As we haven't seen much fundamental movement on the inflation side we will
have to wait until March, for the next projections. Much will hinge on
(Executive Board member Benoit) Coeure, how he positions himself, whether there
will be a bigger change in the wording," the source added.
According to a second source, the time is nearing when the Bank will have
to be more explicit in linking future policy moves to how quickly inflation is
moving towards target.
"At one point in time we should say that the outlook for interest rates is
dependent on the path and the speed how inflation moves towards 2%", the second
source said. "The earlier the better."
In June, when the second assessment of the ECB's forecasts for this year
are due, it might be the right time to announce an end-date for the asset
purchase program, the first source said.
"This is the time when you can terminate the asset purchases, based on the
new projections," the second source noted.
--APP END ANNOUNCEMENT
Although ending bond purchases in September is still an option, the ECB may
extend its asset purchase program to no longer than the end of the year, the
first source told Market News.
"There is a palpable shift of sentiment in the Council with respect to the
end of the asset purchase program," the first source said. "I would not expect
too much fighting about an extension to December."
"I would be pretty surprised, if we did not end the program at the end of
the year -- at the latest," the source said.
"The argument to end purchases has certainly gained importance, so, whether
this means going to zero after September or to find a compromise for the
remaining three months to the year-end doesn't matter too much - its cosmetics."
Back in October, the ECB halved its monthly bond buys to E30 billion,
starting in January, and committed to continue its purchases until September
this year, with an open-ended scheme in mind.
"The fact that even the announcement to halve the monthly asset buys has
not had any effect on the markets shows that there is no impact of the asset
buys anymore," the second source commented.
"From my viewpoint the markets are already disregarding whether the ECB is
buying 30 billion, 10 billion or nothing," the second source added.
--REVERSING NEGATIVE RATES
Discussing the timeframe as to when the ECB may feel inclined to raise
interest rates after ending asset purchases, the sources were not aligned.
An interest rate hike, envisaged 'well past the horizon of our net asset
purchases' might be no further away than two quarters after the end of the asset
purchases, but risks remain, the first source said.
"I expect a minimum of two quarters," the first source added. "It all
depends on whether we will see an unexpected rise in inflation, but apart from
this, the doves may argue in favour of a longer time horizon."
The other source underlined that the timeframe is "completely open. First
of all, you have to change the wording. But I think that we will see action in
With regard to the recent appreciation of the euro against the dollar,
which currently sits near a three-year high of $1.2260 the sources seemed rather
relaxed, saying there is NO need to follow the currency at the moment.
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