ECB meet could bring end to bond-buying

- AGENCE FRANCE-PRESSE, FRANKFURT AM MAIN

Jun 13, 2018-

The European Central Bank may announce Thursday a timetable for withdrawing its massive support for the eurozone economy, analysts say, although looming threats to the bloc could stay its hand for a few more weeks.

Central bankers’ monthly bond purchases of 30 billion euros ($35 billion) and ultra-low interest rates are designed to stoke growth in the 19-nation single currency area and power inflation to their target of just below 2.0 percent.

Growth has picked up across the bloc, although at a slower pace in early 2018 than last year—0.4 percent between January and March compared with 0.7 percent in the previous three months.

Meanwhile, eurozone price growth surged to 1.9 percent in May, in line with the ECB’s target. “Core” inflation discounting the most volatile elements remains weak, but the data suggest that over 2.4 trillion euros of “quantitative easing” (QE) or mass bond-buying since 2015 has dispelled the risk of deflation, or a downward spiral of prices braking economic activity.

At their Thursday meeting in Latvian capital Riga, “the governing council will have to assess whether progress so far has been sufficient to warrant a gradual unwinding of our net purchases” of bonds, top ECB economist Peter Praet said last week.

Central bank President Mario Draghi has until now said governors did not even discuss a possible exit from QE at their gatherings.

That makes the topic’s appearance on the agenda an important signal that the end is approaching.

“After Praet’s remarkable speech, we expect a very exciting meeting on 14 June,” ING Diba bank economist Carsten Brzeski said.

But policymakers may not yet be convinced that the time is right to remove the training wheels completely.

The current list of threats to the eurozone ranges from the new Italian government’s unpredictable spending policies, which could pitch the bloc’s third-largest economy into a financial crisis, to the prospect of a failure to reach a Brexit deal with London.

An acrimonious end to the G7 summit on Saturday heightened the risk of a tit-for-tat trade war between EU nations and US President Donald Trump, while higher oil prices could weigh on future growth.

What’s more, “recent data on business activity have not been strong enough to rule out further disappointment on the growth outlook—a risk that the ECB would find difficult to respond to” if it ties itself to a fixed exit strategy from bond-buying, said economist Frederik Ducrozet of Pictet bank.

Published: 13-06-2018 08:33

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