ECB Ends Massive Stimulus Despite Weaker Economic Outlook

Data : 13/12/2018 @ 09:37
Fonte : RTTF2
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ECB Ends Massive Stimulus Despite Weaker Economic Outlook

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The European Central Bank left its interest rates unchanged on Thursday and confirmed that it will end the asset purchases under its four-year long massive EUR 2.6 trillion Asset Purchase Programme in December, even the as the 19-nation euro area economy shows signs of a sustained slowdown.

The bank also said it is "enhancing its forward guidance on reinvestment."

"Accordingly, the Governing Council intends to continue reinvesting, in full, the principal payments from maturing securities purchased under the APP for an extended period of time past the date when it starts raising the key ECB interest rates, and in any case for as long as necessary to maintain favorable liquidity conditions and an ample degree of monetary accommodation," the ECB said in a statement. Till October, the bank maintained that it will reinvest bond sale proceeds "for an extended period of time after the end of the net asset purchases".

Markets expect the reinvestment to continue until late 2020. As expected, the Governing Council, led by Mario Draghi, left the key interest rates unchanged. The main refi rate is currently at a record low zero percent and the deposit rate at -0.40 percent. The marginal lending facility rate is at 0.25 percent.

"The Governing Council expects the key ECB interest rates to remain at their present levels at least through the summer of 2019, and in any case for as long as necessary to ensure the continued sustained convergence of inflation to levels that are below, but close to, 2 percent over the medium term," the bank said. Given the weaker growth and inflation outlook, and the persistent uncertainties linked to global trade and politics, some economists now expect the bank to raise interest rates only in 2020.

That would make Draghi, the only ECB President thus far, who did not raise interest rates during his tenure which ends in October next year. Fitch Ratings on Wednesday predicted that the ECB is set to change its forward guidance on interest rates in the next few months.

"While the weaker outlook for growth and inflation is very unlikely to prevent the ECB from ending QE in December, its termination at a time of growing uncertainty may necessitate a lower-for-longer accommodative monetary policy stance, in order to lift inflation towards target," Fitch said.

Eurozone interest rates were raised last in July 2011 by 25 basis points.

Draghi is set to hold his customary post-decision press conference at 8.30 am ET in Frankfurt. During the post-decision press conference, Draghi is set to face questions on the Italian budget crisis and the Yellow Vest or "gilets jaunes" anti-government protests in France, both posing risks to Eurozone growth.

Supported by the ECB's stimulus, the euro area economy expanded 2.5 percent in 2017, the fastest pace in a decade. However, the momentum slowed this year and the bank is set to end asset purchases at a time when the economy is showing signs of a sustained slowdown.

In September, the ECB Staff trimmed the growth projections for this year, and next, to 2 percent and 1.8 percent, respectively. Draghi will release the latest set of projections on Thursday that is expected to reveal a further downgrade of the forecast for the coming years and refer to downside risks.

Inflation is yet to embark on a sustainable path to hit the ECB's target of "below, but close to 2 percent", confounding the bank's projections. Core inflation, which excludes energy, food, alcohol & tobacco, has been hovering around 1 percent in the past several months.

The bank maintained its inflation projection for this year, next and 2020 at 1.7 percent in September.

Economists also speculate a return of another of ECB's unorthodox policy tools - the Targeted Longterm Refinancing Operations or TLTRO, in the coming months. Under this, the ECB gives longer-term loans to financial institutions at attractive rates to boost lending in the real economy.

The APP was implemented in 2015 and the monthly asset purchases at the beginning was EUR 60 billion, which was raised to EUR 80 billion in 2016. The size of monthly asset purchases was scaled back to EUR 60 billion in 2017 and to EUR 30 billion at the start of this year.

In June, the ECB announced that its monthly bond purchases will be halved to EUR 15 billion in September, and said it will continue so till the end of December.

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