European Central Bank meeting: Time called on the asset purchase programmeContributors Karen Ward, Global Markets Insights Strategy Team
The European Central Bank (ECB) met today and announced that the pace of asset purchases will be halved from October to a pace of EUR 15bn per month and will be ceased altogether at the end of the year.
However, the Governing Council were keen to emphasise that this does not mean short-term interest rates will rise any time soon. Ultra-loose policy is still required to support economic recovery and bring inflation back to target. As a result all key interest rates will remain at their current levels ‘at least through the summer of 2019’.
This decision was made on the back of new ECB forecasts. Expected GDP in 2018 was revised down from 2.4% to 2.1%. Expectations of growth in subsequent years were unchanged. Expectations of inflation this year and next were revised up due to the recent rise in oil prices. But inflation is still expected to be below target – at 1.7% - in 2020 which highlights the need for ongoing loose policy (exhibit 1).
EXHIBIT 1 : European Central Bank staff macroeconomic projections for the euro area
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