MNI INSIGHT: ECB Underlines Continued Accom Policy Post-Taper

--Minor Differences On Timing, Size of First Hike -- But Over A Year Away

     LONDON (MNI) - Although the European Central Bank has confirmed its aim to

end its bond buying programme in December, policymakers will, over coming

months, continue to drive home the message that the policy stance is still

accommodative, MNI understands after discussions with Eurosystem and monetary

policy sources.

     ECB President Mario Draghi spent much of his time at the central bank's

Sintra Forum last week underlining the messages given out in his June 14 policy

statement and following press conference, stressing that inflation expectations

remained well anchored.

     Draghi has received much acclaim from his peers on the Governing Council

over how he once again steered a path through the conflicting aims of the

opposing wings and put out market guidance that by and large kept everyone on

board.

     He was given credit for how the message was interpreted as the end of

quantitative easing by the 'Berlin public' but seen as mildly dovish by the

financial markets.

     Governing Council members at the dovish end of the spectrum will continue

to highlight the reinvestment of maturing bonds and the option of restarting the

scheme if adverse financial conditions develop.

     But MNI understands that the flexibility the scheme offers for doves will,

if needed, also be there for the more hawkish Governing Council members to argue

for earlier action on rates if there is a serious acceleration in both inflation

and medium term expectations -- not something that is currently on radar

screens.  

     --APP TAPER 

     MNI has been told that the APP tapering -- already lowered to E15 billion a

month from end-September and set to expire in December provided economic data

develop broadly as expected -- should have come as no surprise and should have

been "taken for granted", as it was the most natural way to withdraw from

extended stimulus.

     "It is impossible -- and highly hazardous -- to abruptly and altogether at

once withdraw from the market a high-impact and significant tool such as the APP

without implementing some sort of gradual, parachute-like downsizing, easing the

transition and preparing the ground for normalization".

     This is why the guarantee of continued accommodative policy beyond the APP

termination remains crucial to the consolidation of monetary goals. If new

adverse financial conditions should arise across the bloc, the ECB stands ready

to act, as usual, and the APP will still be at hand.

     All that is left is for policymakers to decide is the exact parameters of

the bond reinvestments, with MNI being told "a concrete plan with the details of

such new securities' reinvestments will come at a later stage," probably not

before "the actual tapering begins."

     --RATE MOVES

     Despite the first hike in rates being at least a year away, MNI has picked

up that there is already some modest divergence in views as to the exact timing

and level.

     As much as Draghi tried to close down the debate for now some, albeit

minor, differences are already bobbling up. Most expect the first hike to come

late in Q3, but some see it in early Q4 -- not an obvious source of important

difference but perhaps pushing the timing back until after Draghi has stepped

down.

     There is also debate about the size of the initial move. Some posited a 15

bps hike in the deposit rate as soon as early summer 2019, which would be

portrayed by the ECB not as the first hike, per se, but merely as a technical

move re-establishing the symmetry of the ECB's rate suite. 

     But one thing that appears clear is that when rate hikes do eventually

start, they will, to paraphrase the Bank of England, be limited and gradual.

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

--MNI London Bureau; tel: +44 203-586-2223; email: david.robinson@marketnews.com

[TOPICS: M$X$$$]