Draghi Says Euro-Area Turnaround Warrants Policy Dial-Back
Comment of the Day

March 08 2018

Commentary by Eoin Treacy

Draghi Says Euro-Area Turnaround Warrants Policy Dial-Back

This article by Piotr Skolimowski for Bloomberg may be of interest to subscribers. Here is a section:

The European Central Bank unexpectedly dropped a pledge to ramp up bond buying if the economy deteriorates, saying the turnaround in the outlook has given it to confidence to change a key part of its monetary-policy guidance.

In what the ECB President Mario Draghi said was a unanimous decision, policy makers in Frankfurt surprised investors by ending an easing bias on quantitative easing, effectively a conditional promise to increase debt purchases in “size and/or duration” if needed. But he said downside risks remain, and added rising trade protectionism to the list of threats.

“These are unlikely contingencies now, the ones that would suggest that we would activate this easing bias,” Draghi said Thursday. The language “was introduced in 2016 -- think about how different the situation was at that time.”

The revision coincided with an upgrade to the ECB’s outlook for 2018. At the same time, Draghi emphasized that, currently scheduled to run at a monthly pace of 30 billion euros ($37

billion) until at least the end of September, will continue until inflation is solidly back on track toward its goal.

Eoin Treacy's view

The ECB is edging towards the exit of quantitative easing. First, they put an end date on purchases, now they are removing the proviso that purchases will be increased and in September they will cease to add €30 billion to their balance sheet. This timetable is subject to the belief that the economy will continue to improve.

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