MNI: ECB to End Net APP This Year, Hike Seen No Earlier H2 '19

By Chris Mc Innes

     LONDON (MNI) - The European Central Bank expects to end its net bond buys

under the Asset Purchase Programme (APP) in December and to begin raising

interest rates no earlier than the second half of next year, ECB President Mario

Draghi announced in Riga, Latvia Thursday.

     During the press conference announcing the ECB Governing Council's monetary

policy decision, President Draghi said that, "we will continue to make net

purchases under the APP at the current monthly pace of E30 billion until the end

of September 2018.

     "We anticipate that, after September 2018, subject to incoming data

confirming our medium-term inflation outlook, we will reduce the monthly pace of

the net asset purchases to E15 billion until the end of December 2018 and then

end net purchases."

     Regarding interest rates, the ECB head said that, "we decided to keep the

key ECB interest rates unchanged and we expect them to remain at their present

levels at least through the summer of 2019 and in any case for as long as

necessary to ensure that the evolution of inflation remains aligned with our

current expectations of a sustained adjustment path."

     Justifying today's decision, Mario Draghi reiterated the governing

council's confidence that inflation was well on its way to converge towards the

ECB's target.

     Regarding the economic outlook, Draghi maintained the ECB's view that

growth was broadbased and sustained. The recent softening of growth, resulting

from a pull-back from last year's high growth, seasonal factors as well as

growing uncertainties in the geopolitical arena, should not detract from this

view, he added.

     Moreover, he noted that "the risks surrounding the euro area growth outlook

remain broadly balanced." Yet somewhat contradictorily, he also highlight the

increasing risks to the outlook stemming from increasing uncertainty in the

international environment. The ECB revised down its GDP forecast for 2019.

     --DOVES VS HAWKS

     Today's unanimous monetary policy decision reflects a careful balance

between the doves and the hawks on the ECB's governing council. The end of net

purchases was announced but the phrasing ("we anticipate") leaves the ECB with

enough wiggle room to deal with any weakening of the outlook.

     The same bargain was struck regarding the forward guidance on interest

rates. Maximising the playroom offered by semantics, the exact meaning of the

guidance is cause for some confusion, as highlighted by journalists' questions

during the press conference.

     "Through the summer of 2019" could mean during or after the summer. In any

event, the phrasing is again designed to provide the ECB with maximum policy

space and remains conditional on the path of inflation.

     And while big questions were answered today, others emerged. Reinvestments

will continue "for an extended period of time after the end of our net asset

purchases." But the timing, size and nature of reinvestments of the stocks

accumulated under the APP will now become the focus of attention.

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com

[TOPICS: M$X$$$,M$$EC$]