While the ECB kept all of its three key rates unchanged as expected, and also kept the pace of QE at €60 billion until the end of the year, confirming the numerous trial balloons over the past month, the ECB announced that it would cut the rate of QE in half, to €30 billion “from January 2018 until the end of September 2018” adding that this would extend “beyond, if necessary” and “until inflation path has sustainably adjusted.”
While the open-ended nature of the announcement was expected by some, the market has taken it as a dovish development, as well as the announcement that the ECB will reinvest the principal payments from maturing securities purchased under the APP “for an extended period of time after the end of its net asset purchases, and in any case for as long as necessary.”
Incidentally, according to preliminary calculations, at a tapered €30 billion rate of QE, the ECB would have until Q2 2019 before it hits the Bund scarcity bottleneck.
Furthermore, the ECB’s soothing promise that “this will contribute both to favourable liquidity conditions and to an appropriate monetary policy stance” has led to dovish plunge in both Eurozone yields and the EUR/USD, which tumbled on the announcement which the markets clearly perceived as risk-friendly.
Full statement below:
