ECB: lower-for-longer QE extension

According to analysts from Danske Bank, the European Central Bank decided for a ‘lower-for-longer’ QE extension in 2018 and left its forward guidance unchanged.

Key Quotes:

“In line with our expectation, the ECB today announced an extension of its QE programme until September 2018, but also scaled down its asset purchases to EUR30bn from January 2018 onwards. Importantly, the ECB also left its forward guidance unchanged and retained the possibility to extend the QE programme in size and/or duration, leaving it open-ended. The ECB reiterated that policy rates will remain at their current levels for an extended period of time and well past the horizon of asset purchases. During the press conference Draghi clarified that no changes in the QE parameters and the sequencing on interest rates were discussed at today’s meeting.”

“The ECB’s QE scale down decision reflected growing confidence by the Governing Council that inflation will eventually converge to target based on an increasingly robust and broad-based economic expansion in the eurozone, an uptick in measures of underlying inflation and continued favourable financing conditions due to accommodative monetary policy measures. Nevertheless, inflation pressures remain muted and hence the ECB stressed the continued need for monetary support through the net QE purchases, forward guidance on interest rates and forthcoming reinvestments.”

“The introductory statement now also excluded any reference to the risks from exchange rate volatility, which is, however, not so surprising given that the effective euro appreciation pace has abated significantly since September, which we think matters more for the ECB than the exchange rate level as such.”

"Overall, we think the ECB’s communication will increasingly focus on the reinvestments and the stock rather than the flow of QE purchases in the future, as it gradually scales back monetary stimulus over the coming years."

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