ECB to end quantitative easing

The European Central Bank has set an end date for quantitative easing, stating purchases will be halved after September before the programme ends in December.

What does ECB tapering mean for eurozone bonds?

Net purchases in the bond buying programme are currently €30bn monthly but that will reduce to €15bn.

However, the Governing Council intends to reinvest the payments from maturing securities for an “extended period of time” after the end of the net asset purchases.

It said this would continue “for as long as necessary to maintain favourable liquidity conditions and an ample degree of monetary accommodation”.

Interest rates remained unchanged and will remain that way through the summer of 2019, the Governing Council said.

It said they would remain at current levels as long as necessary to ensure that the evolution of inflation remains aligned with the current expectations of a sustained adjustment path.

“Today’s monetary policy decisions maintain the current ample degree of monetary accommodation that will ensure the continued sustained convergence of inflation towards levels that are below, but close to, 2% over the medium term,” Thursday’s decision said.

The interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility are 0.00%, 0.25% and -0.40% respectively.

Franklin Templeton Investments head of European fixed income David Zahn said market reaction was positive to the “relatively dovish” taper.

“In the lead up to today’s meeting, European bond yields had risen sharply, apparently in expectation of an earlier end to QE and a resultant reduction in bond market liquidity. Ahead of the meeting, speculation had also intensified around the timing of potential interest rate hikes in the eurozone,” Zahn said.

He added the reinvestment of QE proceeds could continue for some time. “If the ECB’s follows the model of the United States, we’d expect it to start tightening before beginning to reduce the size of its balance sheet.”

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