ECB Set to Scale Back Bank QE: Eurozone Economy on a Healthy Track

Written by | Friday, October 27th, 2017

European Central Bank (ECB) officials are looking into options to scale down their massive bond-buying program, however, worry that the stronger euro may harm the Eurozone’s economy. They present policy makers with multiple options including extending quantitative easing (QE) program for longer but with a greater reduction in pace in contrast to continuing it for a shorter period of time with larger monthly purchase volumes. Some analysts think that the stimulus would be still impactful in either scenario.

So far, there is little clarity as to when exactly the reduction should occur which is perhaps the biggest issue from the investor standpoint. Markets will likely feel short-changed by the lack of detail, some analysts ponder. The ECB’s €60 billion a month bond-purchase program, known as QE, has underpinned the Eurozone’s financial markets since its launch in early 2015 and boosted economic growth and inflation by propping up asset prices and supporting bank lending. As the region’s economy strengthens and the unemployment rate falls, officials have started to think about reducing the program, which has proven controversial in countries such as Germany.

“This is a firmer commitment to tapering than the vague indication given by President Draghi at the press conference after the meeting,” Jennifer McKeown of Capital Economics in London commented on the ECB’s plan. Mario Draghi, ECB President, signaled in September that the bank would probably announce its plans for the future of the bond-buying program at the end of this month. However, there are indications that the head of the ECB would like to proceed “in a very gradual and cautious manner” amid uncertainties in the global economy and a recent surge in the euro.

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