ECB calls time on €2.6tn QE expansion programme

The termination of its QE programme will see the European Central Bank end extra bond purchases, with investors told to expect interest rate rises in the second-half of 2019.

ECB President Mario Draghi
Source: Bloomberg

The European Central Bank (ECB) announced that it will end its €2.6tn quantitative easing (QE) expansion programme, signalling an end to it buying back bonds which has helped support the eurozone economy.

However, the ECB said that, despite its bond buyback programme coming to an end in December, it will continue to reinvest the proceeds from bonds bought under QE ‘for an extended period of time past the date when it starts raising the key ECB interest rates’.

ECB leaves interest rates unchanged

The ECB also announced that it will leave interest rates unchanged, with the central bank expecting to keep them at present levels through the summer of 2019 or as long as necessary to keep inflation levels near 2%.

On Thursday, ECB President Mario Draghi admitted that economic data was weaker than expected, but said he believed that consumer spending will offset a fall in export sales and help drive economic expansion in the eurozone.

‘If the ECB was to do an objective assessment of what’s changed in the economy since June, they would extend asset purchases. There is clearly a deterioration in the performance of the economy,” IHS Markit economist Ken Wattret said.

‘The Japanese experience of deflation was a big issue for the euro area during the crisis. Underlying inflation is still not really picking up, there is a genuine concern that the lack of ammunition in the eurozone could be an issue in the future.’

ECB waves good-bye to QE

The bank started its QE programme back in January 2015 with the intention of offsetting low demand and stationary inflation in the eurozone.

The Bank of England and the US Federal Reserve were much quicker to start their respective QE programmes that the ECB, which initially struggled to find support for the move, with northern European member states, less effected by the fallout of the financial crisis, reluctantly accepting the monetary policy compared to their debt laden southern neighbours.

IGA, may distribute information/research produced by its respective foreign marketing partners within the IG Group of companies pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the research is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, IGA accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact IGA at 6390 5118 for matters arising from, or in connection with the information distributed.

This information/research prepared by IGA or IG Group is intended for general circulation. It does not take into account the specific investment objectives, financial situation or particular needs of any particular person. You should take into account your specific investment objectives, financial situation or particular needs before making a commitment to trade, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. In addition to the disclaimer above, the information does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. Any views and opinions expressed may be changed without an update.

See important Research Disclaimer.

Find articles by writer