Five things to know about ECB's bond-buying programme

17 June, 2018, 11:41 | Author: Shannon Aguilar
  • ECB calls halt to quantitative easing, despite 'soft' euro

The euro recovered some ground against the dollar, a day after the European Central Bank signaled it would keep interest rates at record lows into the summer of 2019, prompting the common currency to fall almost 2 percent drop.

It, however, is subject to incoming data confirming ECB's medium-term inflation outlook, according to the statement released after the Governing Council meeting of the European Central Bank in Latvia's Riga.

With sizeable stock of acquired assets, worth 2.4 trillion euros as of May, together with reinvestments of the principal payments from maturing securities purchased after the end of asset purchase program, as well as forward guidance on interest rates, the European Central Bank intends to ensure the ample degree of monetary easing for an extended period of time. That could make markets around the world more volatile, Schutte said, as investors handicap what each weekly or monthly economic report means for interest rates.

"The ECB has announced QE will end in December and rates are to be on hold until "at least" summer 2019".

The euro, meanwhile, touched on its steepest one-day drop against the USA dollar since June of 2016, while the dollar accelerated to a two-week peak.

Fear of a global trade war, currency swings and political turbulence aside, the European Central Bank will very likely raise rates too today.

Bond purchases are now running at a maximum of €30 billion (R470 billion) per month, but will be lowered to €15 billion (R235 billion) per month from September, before being completely stopped at the end of December.

"Looking ahead, underlying inflation is expected to pick up towards the end of the year and thereafter to increase gradually over the medium term, supported by our monetary policy measures, the continuing economic expansion, the corresponding absorption of economic slack and rising wage growth".

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The size of the stimulus was enormous: At €2.7 trillion, it rivals the entire value of the French economy previous year.

"Uncertainties related to global factors, including the threat of increased protectionism, have become more prominent, the risk of persistent, heightened financial market volatility warrants monitoring", said Mr Draghi.

Mindful of the Bank's two disastrous hikes in 2011 that exasperated the Eurozone's debt crisis, the Bank will seek to balance raising rates with aggravating the debt.

"The intention of our interest rate formulation is to give it a time dimension, but not a precise one", he said.

It has so far pumped more than two trillion euros into the bloc's economy, while keeping interest rates at or near zero.

Asset purchase program is not disappearing, instead, it remains a normal instrument of monetary policy, said Draghi.

EURUSD initially spiked higher on the apparent hawkishness before paring those gains and heading back below 1.18 to trade on the 1.1740 level, said Neil Wilson, chief market analyst for Markets.com.

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