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--The ECB might not finally commit to ending bond purchases in December just yet
LONDON (MNI) - The European Central Bank is set to confirm it will wind
down its asset purchase programme in October at its Governing Council meeting
Sept. 13, but might hold off a final commitment to end it in December, monetary
policy sources told MNI.
In introductory statements to his press conferences in June and July, ECB
President Mario Draghi said the central bank anticipates reducing the pace of
its APP to EUR15 bn a month from October, and that it would cease after
December. The word "anticipates" may now move to the last part of that sentence,
before "that it would cease", allowing the ECB some flexibility in case of a
sudden economic downdraught, one source said.
While governors still expect the APP to end in December, some of them may
want to wait until the ECB's December macroeconomic projections to finally sign
off on its conclusion, the source said.
Another source agreed, saying that "anticipated" could remain in the clause
about ending APP as wiggle room, although in the absence of some extraordinary
shock the programme was almost certain to draw to a conclusion at the end of the
year. A third, though, indicated that some on the Governing Council were more
impatient, telling MNI that there are governors "of the opinion that next week
it's necessary to have a final formal decision on the purchase programme."
--"THROUGH THE SUMMER"
Draghi has also said that the bank expects to keep interest rates at their
present levels "at least through the summer of 2019." There has been no
discussion within the Governing Council on making this formulation more precise,
the third source said, adding: "Nobody knows exactly what it means."
Another source said "through the summer" would be compatible with a Council
discussion of a rate hike in June or July, followed by an increase in the
deposit rate in September, and all three key rates the following month. In
minutes of the ECB's July meeting, Council members said the guidance had been
"effective in aligning market views about the future evolution of policy rates."
The latest round of the ECB's quarterly macroeconomic projections are due
in September and will show little change from June, one of the sources said,
adding that the short-term inflation outlook might be slightly higher and growth
slightly lower, but the key medium-term inflation outlook should remain the
It was unclear, according to two sources, whether the Governing Council
would be ready to provide any guidance as to how the ECB will reinvest proceeds
of its maturing bonds after the end of quantitative easing. It is possible that
none will be provided for some months, one source said.
Trade remains prominent among risks being monitored by the ECB, and, while
the immediate danger to the Eurozone economy from a rise in U.S. tariffs seems
to have moderated since European Commission President Jean-Claude Juncker met
President Donald Trump in July, the threat will remain until a final deal is
reached, one of the sources said.
The ECB is also keeping an eye on Italy, whose 10-year bond yield has eased
from year highs amid investor concern that Rome could violate EU rules on budget
deficits. The ECB is concerned by what it perceives as Italian leaders' growing
tendency to blame it for their country's economic failings, particularly since
the death of more than 30 people in a bridge collapse in Genoa in August, but it
will continue to set policy for the whole Eurozone, sources said.
--MNI London Bureau; +44208-865-3829; email: Jason.Webb@marketnews.com