MNI STATE OF PLAY: ECB Expects Dec End To APP Despite Slowdown

By Luke Heighton

     LONDON (MNI) - The European Central Bank reaffirmed it anticipated ending

asset purchases after December and said that a slowdown in some economic data

had not affected the overall balance of risks.

     Here are highlights from ECB President Mario Draghi's comments at the press

conference, in which he said some data had been weaker than expected and that

policy would remain accommodative even if asset purchases cease at the end of

the year:

     --The ECB repeated that it expects to end its programme of asset purchases,

currently running at EUR15 billion a month, after December, and that interest

rates would remain at their present levels at least through the summer of 2019.

Draghi twice used the phrase "Even if APP were to end at the end of this year."

     -- "An ample degree of monetary accommodation is still necessary" for

inflation to converge towards target in the medium term.

     --Some economic data has been weaker than expected, but overall it remains

consistent with a sustainable convergence towards the ECB's inflation target.

Growth was also returning to levels compatible with potential after last year's

expansion at rates above potential. The impact of risk factors including trade

uncertainties and tensions over Italy's budget should be clearer once the ECB

produces its December economic forecasts.

     --Monetary policy will remain very accommodative even if asset purchases

cease in December, Draghi said, thanks to reinvestment of maturing bonds and

forward guidance.

     --Underlying inflation is still muted but increasing from earlier lows, and

Draghi said he was confident that the rate of price increases would gradually

converge to the ECB's target.

     --The ECB meeting did not discuss how to reinvest maturing bonds. Draghi

said he would be surprised if the ECB were to stop using its capital key to

guide its reinvestment purchases.

     -- Draghi said there was no evidence of contagion from Italy, but refused

to rule the possibility out altogether. He expressed confidence that an

agreement between Brussels and Rome would be reached. Asked how the ECB would

respond should higher Italian government bond yields erode the capital of

Italian banks, he said that the answer would be for the Italian government to

pursue policies which reduced spreads.

     - Draghi did not answer the question of what the ECB would do in the event

that no consensus on reinvestment policy could be reached in December.

--MNI London Bureau; +44208-865-3829; email: Jason.Webb@marketnews.com

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