You are here: Home » Reuters » News
Business Standard

ECB eyes baby step towards stimulus exit

Reuters  |  FRANKFURT 

By Balazs and Francesco Canepa

FRANKFURT (Reuters) - The is all but certain to keep policy unchanged on Thursday but may tweak its communication stance to offer at least a few clues about its progress towards ending its unprecedented bond purchases later this year.

Having revived euro zone growth with lavish stimulus, the is now debating whether to step back and preserve its remaining firepower. But concerns over low inflation, a strong euro, rising political risk and recent market volatility are expected to prevail for now.

"This ugly knot of risks could prompt the eurozone's monetary custodians to stick to their current wording and keep all the available options open for the moment," Pascal Segesser, an at Germany's DZ Bank, said.

Having promised to review their communication stance in "early" 2018, however, and with asset purchases due to expire in September, policymakers are likely to give investors at least a few hints to prepare them for a broader revision of policy around the summer months, economists predicted.

"There is no rush; the still has plenty of time to announce any change on both its guidance and its policy," Luigi Speranza, an at said.

The announces its policy decision at 1245 GMT, followed by Mario Draghi's conference at 1330 GMT, which will also include a quarterly update of economic projections.


The dichotomy facing the is that while growth has blown past expectations, inflation remains weak, having hit a 14-month low in February and staying well short of its target of almost 2 percent.

While the bloc's five-year growth run and a rapid drop in unemployment suggest that inflation will eventually rise, its rebound is still months away, complicated by the euro's rise against the dollar, which puts a lid on price growth.

The single currency was trading at $1.24 on Thursday, a touch below a three-year high hit last month.

Risks of a trade war with the United States, an inconclusive election in and falling share prices could add to caution, economists predicted.

New economic projections are also not likely to trigger a bigger policy shift since they are expected to confirm earlier expectations, pointing to an eventual rise in inflation but still indicating a lack of convincing underlying price pressures.

The biggest change on the agenda is likely to be a proposal to drop the bank's so-called easing bias, which stipulates that bond buys could be increased if needed, sources close to the discussion told earlier.

While few if any actually expect purchase volumes to rise, such a tweak would suggest policymakers are increasingly confident that their 2.55 trillion bond buys could finally end this year after several extensions.

"We forecast the to drop its bias to increase asset purchases in size, if necessary, in April," said.

"For the rest of the year, we believe the is likely to normalise its monetary stance via further baby steps," Hense added.

Indeed, polled by expect bond buys to conclude at the end of this year while a first rate hike is expected only in the second quarter of 2019.

For now, the ECB's benchmark deposit rate will stay at minus 0.4 percent and monthly bond buys will continue at 30 billion euros per month.

"We believe the is moving dangerously slowly with its normalisation process, not only running the risk of missing the window offered by the strong economic conditions but also of undermining the role of monetary policy in future macroeconomic stabilisation efforts," said.

(Reporting by Balazs Koranyi; Editing by and Toby Chopra)

(This story has not been edited by Business Standard staff and is auto-generated from a syndicated feed.)

First Published: Thu, March 08 2018. 14:13 IST