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Wary ECB decides to buy fewer bonds, for longer

Thursday, October 26, 2017 - 01:57

The European Central Bank has taken its biggest step yet in weaning the euro zone economy off years of stimulus but said the economic outlook was still dependent on its lavish monthly purchases of euro zone bonds. Kate King reports.

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It was the verbal equivalent of tip-toeing out of a room. The European Central bank opting for gradual change on Thursday. Or as Mario Draghi put it, it's going to 'recalibarate'. (SOUNDBITE) (English) EUROPEAN CENTRAL BANK HEAD, MARIO DRAGHI SAYING: " From January 2018 our net assest purchases are intended to continue at the monthly pace of 30 billion euro until the end of September or beyond" While the ECB IS halving its bond-buying purchases it says it will happily extend its QE programme beyond its fourth year, if necessary. Draghi acknowledged that the euro zone economic outlook had improved, but said core inflation rates remain stubbornly below its 2 percent target - and aren't yet showing signs of an upwards trend (SOUNDBITE) (English) EUROPEAN CENTRAL BANK HEAD, MARIO DRAGHI SAYING: "An ample degree of monetary policy is still necessery for underlying inflation pressures to continue to build up and support headline inflation developments over the medium term." Draghi was clearly hoping to avoid a taper tantrum. Indeed the markets reaction was muted and analysts say it doesn't necessarily present a risk to the value of bonds. SOUNDBITE) (English) WORLD FIRST, CHIEF ECONOMIST, JEREMY COOK, SAYING: "A reduction in the stimulus in the stimulus plan and maybe just an elongation of how long they're going to be buying these bonds for isn't an automatic sell signal. Look at where US Ten year debt is at the moment look at where the guild market is here in the U.K. look at Japanese debt. There's a lot of reasons out there why bond investors will continue to buy into European debt even though the ECB is withdrawing some of its purchases." As for interest rates, they'll remain at their present level until well past the end of asset purchases. This time round the ECB's decision wasn't unanimous, a sign that easy money - is more complex that its name suggests. (SOUNDBITE) (English) WORLD FIRST, CHIEF ECONOMIST, JEREMY COOK, SAYING: this is a decision that has not been taken lightly and that's the gradual reduction of stimulus is going to be is going to be very very slow. The policy still remains accommodative in the European Central Bank to make sure that we don't we don't get any form of taper tantrum like we did in the States back in 2014. ( (SOUNDBITE) (English) WORLD FIRST, CHIEF ECONOMIST, JEREMY COOK, SAYING: You know this is a pox over everyone's house here in the here in the western world is that businesses aren't productive enough employees aren't productive enough and therefore we're not seeing wage increases we're not seeing inflation as a result. The ECB is basically done as much as it can and it will pressure governments to try and pick up the pick up the slack from now from now on.

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Wary ECB decides to buy fewer bonds, for longer

Thursday, October 26, 2017 - 01:57