ECB’s Monetary Policy Statement surprises by outlining the ending of APP and more! - Westpac

Analysts at Westpac noted that the ECB's guidance clarity proved to be an extending of forward guidance and offered the following key points:

  • Unchanged policy until end Sept. 2018 (APP EUR30bn per month, deposit rate -0.4%).
  • APP halved in Oct. to EUR15bn and then to cease at the end of Dec. 2018.
  • Maturities to be re-invested for “an extended period” after APP ends for an extended period.
  • Rates to remain at current levels “at least through the summer of 2019”.
  • All information is data dependent.

Key Quotes:

"The first and initial surprise from the ECB’s Policy Statement was not the way in which the ECB is ending their Asset Purchasing Programme APP, but that it has been brought forward from the expected detailing in July."

"Tapering from EUR30bn in Sept. to EUR15bn in Oct., before ceasing at end of Dec. 2018 (all being data and circumstances dependent), was much as markets had been expecting."

"The ECB’s decision to provide this detail clears uncertainty from markets which have been clamouring for this guidance since the September 2018 date was provided back in December 2017."

"Given recent comments from Chief Economist Praet and other prominent ECB Council members, such as Weidmann and Coeure, about the appropriate need to prepare for withdrawal of QE this clarity, rather than commentary around discussions, allows ECB and markets to concentrate on longer term issues."

"The second surprise was the (serially repeated in Press conference) effective extended guidance on reinvestment and policy rates remaining at current levels “at least through the summer of 2019” and “in any case for as long as necessary”. This extending of guidance is, as Draghi later affirmed, due to increased uncertainty over the past quarter (relating to trade and internal volatility, the latter clearly an intimation of Italian tensions)."

"Draghi also repeatedly informed the Press conference of the unanimity of the ECB’s decisions. All of this underscored the extended forward guidance on actual policy rates and re-investment of maturing APP assets."

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