The European Central Bank (ECB) outlined plans to end its massive stimulus program by the end of this year, but keep interest rates steady until next summer.
The bank said Thursday that if incoming data followed its forecasts, then its monthly bond purchase program would be extended through to the final quarter of the year, though at a lower pace. This means the program would likely end in December if the euro zone economy remained resilient.
Until now, this quantitative easing (QE) program was scheduled to last until September, carrying monthly purchases of 30 billion euros ($35 billion) of government and private debt. This will now be reduced to 15 billion euros during the last three months of 2018.
Furthermore, the ECB also indicated that a rate hike is unlikely to come before the summer of 2019, again depending on data.
“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,” the ECB said in its statement.
QE is aimed at boosting lending in the region and stimulating growth, following the severe contraction seen earlier in the decade. Thursday’s announcement was widely expected by market participants.
Some market players were hoping to see the first rate hike in June of next year. As a result, the euro moved lower against the dollar.
“Today’s decision is a truly Solomonic compromise between the hawks and the doves. The hawks finally got their end-date for QE, while the doves still have their open door for more if needed. Nicely done,” Carsten Brzeski, chief economist at ING, said in an emailed note.
ECB President Mario Draghi is due to comment on the decision at 1:30 p.m. London time.
A ‘live’ meeting
Market players had described this month’s meeting as being “live,” following remarks by the central bank’s chief economist that the ECB would start preparing to end its stimulus. ECB’s Peter Praet said last week the bank would be discussing how to unwind its asset purchase program — which was implemented in 2015 to revamp the euro economy in the wake of the 2011 sovereign debt crisis.
Germany’s ECB representative, Jens Weidmann, also said last week that he expects the trillion-euro program to come to an end before the end of this year.
David Zahn, the head of European fixed income at investment firm Franklin Templeton, told CNBC’s “Squawk Box Europe” Friday that the ECB had “spent 2.5 trillion (euros) to do QE, and they want to make sure they don’t exit too quickly and kinda end up wasting over 2 trillion euros.”
The ECB has been under renewed scrutiny over the last few weeks. Some analysts and officials have suggested that stronger economic data in the region requires a tighter attitude towards monetary policy. The new anti-establishment government in Italy has also voiced some criticisms of the central bank.
Members from the new government accused the ECB of market manipulation by buying more German bonds in May and less Italian debt. Experts told CNBC that there were technical reasons that justified such purchases last month.