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.

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