ECB Maintains Accommodative Policy Stance
|Special Commentary
The main event of the week turned out to be the regularly-scheduled policy meeting that was held at the European Central Bank (ECB) on Thursday. Although there were some mixed moves by the Governing Council of the ECB, the outcome was, on balance, dovish. Moreover, the Governing Council indicated that it is prepared to ease policy further, if necessary.
The ECB has been buying assets (mostly government bonds) from the private sector for nearly two years with its recent pace of purchases totaling €80 billion per month. This quantitative easing (QE) program has led to a marked increase in the size of the ECB’s balance sheet over the past two years (Figure 1). The ECB’s QE program was set to expire in March 2017, so most analysts had looked for some sort of decision on Thursday regarding the longevity of the QE program. In the event, the Governing Council announced that it would dial back its purchase rate to €60 billion per month starting in April 2017. This decision surprised most analysts because they had not expected the ECB to announce a “tapering” in its monthly purchase rate just yet.
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