The European Central Bank will extend its asset purchase program to the end of December 2017, but at a reduced monthly pace.
The ECB announced the decision following a meeting of the Governing Council on Thursday.
From April 2017 until the end of December 2017 — or beyond if necessary — the ECB will make asset purchases of €60 billion ($63.5 billion) per month. Its current program is to purchase €80 billion of assets a month, running until the end of March 2017.
“If, in the meantime, the outlook becomes less favorable or if financial conditions become inconsistent with further progress toward a sustained adjustment of the path of inflation, the Governing Council intends to increase the program in terms of size and/or duration,” said the published monetary policy decision.
Mario Draghi, president of the ECB, repeatedly stressed at a press conference that the extension of the asset purchase program, although at a slower pace, is not tapering of the bank's QE program. “The extension of our purchases over a longer horizon allows for a more sustained market presence and, therefore, a more lasting transmission of our stimulus measures,” he said. “This calibration reflects the moderate but firming recovery of the euro area economy and still subdued underlying inflationary pressures.” He added that the Governing Council will closely monitor the development of the outlook for price stability and, if necessary to achieve its objective of bringing inflation close to 2%, “will act by using all the instruments available within its mandate.”
Since the ECB's inflation forecast for 2019 is 1.7%, “inherently, that means that the ECB will run stimulative monetary policy for many years to come,” said Jack McIntyre, portfolio manager at Brandywine Global Investment Management, in an e-mail. “We're seeing that discounted in the euro.”
The Governing Council also made a number of changes to the parameters of its program, decreasing the minimum remaining maturity for eligible securities to one year from two years and allowing for the purchase of securities with a yield to maturity that is below the interest rate on the ECB's deposit facility “to the extent necessary.”
“Extending the maturities and allowing down the curve to buy one-year with more negative interest rates demonstrates a desire to steepen the yield curve,” said Mr. McIntyre.
The ECB also announced that interest rates will remain unchanged. The marginal lending facility, which provides overnight credit to banks from the eurosystem, remains at 0.25%. Interest rates on the main refinancing operations of the eurosystem, which provides the bulk of liquidity to the banking system, stays at zero. The interest rate on the deposit facility, which is used by banks to make overnight deposits, will stay at -0.4%.
“The Governing Council continues to expect the key ECB interest rates to remain at present or lower levels for an extended period of time, and well past the horizon of the net asset purchases,” said the published decision.
