ECB to keep pumping stimulus until 2018 – S&P
Look away now if you’re German. The European Central Bank will extend its unprecedented bond-buying programme into 2018, S&P Ratings has said, despite current plans to pencil in an end to its stimulus measure around December this year. With measures of core inflation – which are less volatile than headline inflation – remaining disappointing and credit growth still unremarkable, S&P thinks eurozone policymakers will tread “cautiously” in winding down the more than €1.5tn quantitative easing programme. As it stands, the ECB is planning to begin scaling back its QE purchases from €80bn a month to €60bn from April this year, and has promised to keep going until December “or beyond, if necessary, and in any case until the Governing Council sees a sustained adjustment in the path of inflation consistent with its inflation aim”. Despite the eurozone economy staying resilient in the face of the Brexit vote in June, an upsurge in German inflation to 1.7 per cent in December has raised freshed questions about the suitability of record low interest rates and QE for the eurozone’s largest economy. Jean-Michel Six, S&P’s chief economist for Europe, the Middle East and Asia, said: Despite increased pressures coming from Germany to raise interest rates due to rising inflation, we anticipate a very gradual and cautious reduction of the purchases in the second half of this year, with an additional cut in the first half of 2018. Speaking at his latest press conference last week, where the ECB held rates and kept QE unchanged, Mario Draghi said December’s developments were not enough to convince him of a sustained rise in eurozone inflation. Benoit Coeuré, a member of the ECB’s governing council, told French radio this morning it was too early for the central bank to shift on its easing measures which must remain “appropriate” for the prevailing economic conditions in the bloc. Mr Six said he expects QE to be tapered to €40bn in the second half of this year, before a final cut in 2018. “The magnitude of this reduction will depend on the global credit conditions prevailing at the time”, he said, adding: The bank is saving fuel in anticipation of having a longer road to drive. But the ride isn’t likely to be smooth as rising divergences appear among eurozone members. Read more ECB to buy bonds below its deposit rate – what it means European governments must wake up to QE tapering