ECB Extends QE Program Until Dec 2017

• ECB Extends QE Program Until Dec 2017

The European Central Bank (ECB) announced a continuation of the bank’s generous asset-buying program on Thursday, although a reduced pace of purchases is set to start from April next year.

Current asset purchases of 80 billion euros ($86 billion) a month were due to end in March 2017, but will now be extended until at least December 2017 and will be cut to 60 billion euros a month from April 2017, the bank said in a statement. Benchmark interest rates were left unchanged.

The ECB was widely expected to announce it will continue with its massive trillion-euro bond-buying program at its meeting on Thursday, in an attempt to boost the euro zone’s economic recovery.

In what is the most closely watched ECB meeting in several months, President Mario Draghi is expected to talk at a press conference at 1.30 p.m. London time.

A reduction in asset purchases could risk a euro zone version of the so-called “taper tantrum” in the markets — even though a lesser amount for a longer period would result in the ECB buying more bonds.

Taper-tantrum

“Amid growing evidence of a more robust recovery and improved policy transmission, there is a case for a reduction in the pace of asset purchases at some point in 2017, if anything because stocks matter more than flows in the ECB’s view,” Frederik Ducrozet, economist at Pictet said in a note before the announcement.

“However, signaling an eventual tapering of asset purchases now would almost certainly trigger an unwarranted tightening of monetary conditions, or ‘taper tantrum’, that might jeopardize the recovery and force the ECB to do more,” he added.

ECB members, in the run-up to the meeting, have emphasized it was “crucial” to stick with easy financial conditions particularly with the continent’s stubbornly low inflation levels.

The euro hit three week highs against the dollar shortly ahead of the ECB meeting on Thursday as investors appeared to project Draghi would adopt a somewhat less dovish stance than in the past and avoid a taper tantrum in the market.

Investors are increasingly anxious about both economic and political stability in the 19-nation euro zone after Italian voters rejected constitutional reforms over the weekend and crucial general elections are due to take place in 2017.

Meanwhile, Europe’s central bank is at odds with the Federal Reserve which is anticipated to raise interest rates at its meeting next week.