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Bond Market News
ECB Expected to Reduce and Extend Purchases as Part of Tapering Plan
October 26, 2017
All eyes are on the European Central Bank as members meet later today, in what could be the most eventful meeting of the central bank this year. President Mario Draghi has fuelled expectations for a big tapering plan: likely that purchases will continue until September 2018 at half of the current EUR 60 billion rate, while the program is extended for 6-9 months beyond the current December end date.
The central bank has remained ultra-accommodative in the years since the global financial crash and the euro zone sovereign debt crises, by buying assets in a bid to stoke inflation and boost the economy. Unwinding of the monetary stimulus is a tricky task as inflation is still stubbornly below target and the members of the ECB’s Governing Council have diverging ideas on the best method to achieve it.
Draghi is also widely expected to stress so called “sequencing”, meaning that rates will only be hiked after the complete end of the ECB’s quantitative easing, saying previously that the ECB’s message that interest rates will remain low “well past” the bond-buying finishes is “very, very important.” This at least will bring comfort to the markets that any tightening moves by the central bank will be gradual.
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