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MNI (London)
--First Hike Could Come Before APP Reinvestments End
By Chris Mc Innes
     BERLIN (MNI) - A first interest rate increase in mid 2019 seems plausible
and could happen before the European Central Bank ends reinvestments under its
Asset Purchase Programme, Bundesbank president Jens Weidmann said in a speech
today.
     Speaking at a think tank in Mannheim on the importance of central bank
communication, Weidmann said that, "market participants expect a first interest
rate increase around mid-2019, which seems to me not entirely unrealistic."
     He explained that the first interest rate increase was likely to happen
closer to the end of the net purchases compared to the normalisation path taken
by the US -- where the Fed hiked rates a year after ending QE -- because the
Eurozone is at a more advanced stage of the business cycle than the U.S. was at
the time.
     The Bundesbank head also highlighted that the Federal Reserve hiked rates
for the first time after the end of QE before the end of its reinvestments. He
added that, "most market participants expect a similar sequencing and the ECB
governing council has so far seen no reason to correct these expectations."
     Nevertheless, he stressed that the pace of interest rate increases and the
end of the reinvestments under the APP were dependent on the path of inflation.
     Weidmann's remarks echo a speech he made in late March, when he said views
that the first ECB rate increase of the current cycle will come in the middle of
next year are a "plausible anticipation" of the way forward.
     On that occasion, he reminded that even without net bond buys, monetary
policy will maintain its expansive stance. "The end of net purchases is only the
starting point of a multi-year normalisation of monetary policy," he said.
"Therefore, it is so important to actually start it soon," he noted in Frankfurt
on March 28.
     The ECB announced last week that interest rates will remain on hold "for an
extended period of time, and well past the horizon of the net asset purchases."
--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com
[TOPICS: M$E$$$,M$G$$$,M$X$$$,MT$$$$,M$$EC$]
MNI London Bureau | +44 203-865-3812 | les.commons@marketnews.com