ECB extends QE to December 2017

The European Central Bank will extend its asset purchase program to the end of December 2017, but at a reduced monthly pace.

The ECB said on Thursday it would extend its so-called quantitative easing program by nine months, until at least the end of next year, taking its total size above €2.2 trillion ($2.36 trillion). But starting in April, the bank will reduce the value of securities it buys per month to €60 billion from €80 billion.

ECB President Mario Draghi took pains at a press conference Thursday to stress that the bank’s decision didn’t amount to tapering, or winding down, the bank’s stimulus. He warned that inflation in the eurozone remained too weak and said the ECB would keep buying bonds for some time.

Draghi repeatedly stressed at a press conference that the extension of the asset purchase program, although at a slower pace, is not tapering of the bank's QE program. “The extension of our purchases over a longer horizon allows for a more sustained market presence and, therefore, a more lasting transmission of our stimulus measures,” he said. “This calibration reflects the moderate but firming recovery of the euro area economy and still subdued underlying inflationary pressures.” He added that the Governing Council will closely monitor the development of the outlook for price stability and, if necessary to achieve its objective of bringing inflation close to 2%, “will act by using all the instruments available within its mandate.”

The ECB also announced that interest rates will remain unchanged. The marginal lending facility, which provides overnight credit to banks from the eurosystem, remains at 0.25%. Interest rates on the main refinancing operations of the eurosystem, which provides the bulk of liquidity to the banking system, stays at zero. The interest rate on the deposit facility, which is used by banks to make overnight deposits, will stay at -0.4%.

The central bank is expecting only modest economic growth for the eurozone over coming years. It believes GDP growth this year will come in at 1.7%, will match that pace again in 2017 and then ease to 1.6% in 2018 and 2019.