The
European Central Bank (ECB) is cutting in half its asset-buying programme but
is extending it for nine months.
The
decision on Thursday signaled the restructuring of the programme rather than a
bold step signaling an end to Quantitative Easing (QE).
The ECB
will reduce its bond-buying programme from €60bn to €30bn a month. QE will
continue until the end of September 2018, that is, nine months longer than
originally envisaged.
That means
that the Euro’s value will not continue to rally against the US dollar or the
pound.
The ECB
board made clear that this may be extended further “if necessary,” adding that
the pace of asset-buying may rise again if conditions dictate it.
Frankfurt
will continue to aim for 2% inflation, maintaining a steady supply of
historically cheap liquidity. Interest rates will remain at minus 0.4% for
deposits and 0% for lenders. A rise in interest rates is not expected before
the first quarter of 2019 at the earliest.
The
Eurozone as a whole is in its fifth year of economic recovery, with the
creation of seven million jobs. Many states exhibit strong growth that is
driven mainly by consumption. However, there is a wide divergence between the
19-member states of the Eurozone and significant volatility. Wage growth
remains depressed and inflation subdued to 1,5%.
Nonetheless,
certain member states are calling for a swift change in policy with two main
arguments put forward. On the one hand,
cheap liquidity is inflating the price of assets such as houses,
increasing inequality. On the other, sectors dependent on fixed income, such as
insurance companies are squeezed out of the bond market.
https://www.neweurope.eu/article/ecb-restructures-quantitative-easing-programme/