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.
The ECB currently buys €30bn in government bonds a month in what has become known as a quick fix to boost the flow of money and short-term growth.
In total the ECB has bought more than €2.4 trillion bonds under its quantitative easing (QE) programme, in an attempt to fight off another economic downturn.
Many feel that the money printing project has run its course and the time is right for a newly confident eurozone to step out from the shadow of QE.
However, with economic growth is once again slowing in the eurozone – particularly in Germany – and with Trump inspired geopolitical tensions mounting, the ECB was reluctant to move away from a tried-and-tested, albeit short-term winning formula.
Events in Italy had also threatened to derail the ECB’s desire to end QE after electing the eurozone’s first euro-sceptic government that had previoulsy made threats to leave the euro.
Despite the news on QE, the Euro has sunk 0.53 against the pound after the ECB announced that interest rates probably on hold until 2019.
The headline cost of borrowing in the eurozone will probably remain at zero for many months to come and banks will continue to be charged a negative interest rate of -0.4%, in an attempt to get institutions lending.
The ECB said: “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 that the evolution of inflation remains aligned with the current expectations of a sustained adjustment path.”
Unsurprisingly, after months of poor economic data the ECB has cut its growth forecast, from 2.4 percent to 2.1 percent.
Alluding to a potential trade war, President Draghi said that global risks have increased alongside a rise in protectionist measures.