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THE European Central Bank (ECB) won’t end its asset-buying program early, though it might do so abruptly, economists say.
Over two-thirds of respondents in a survey said the ECB will stop quantitative easing (QE) in September 2016, as currently planned, and most of those said it will do so without tapering purchases. The remaining analysts said policymakers will gradually wind the program down, with the end-date ranging from December 2016 to December 2017.
Massive stimulus from record-low borrowing costs, a weaker euro and cheaper energy is stoking speculation over how quickly the ECB might reach its inflation goal and complete a 1.1 trillion-euro (US$1.2 trillion) program that started only last month. The risks related to policy tightening were highlighted in 2013 when global market volatility escalated as the U.S. Federal Reserve signaled it was ready to taper its own QE.
“One could argue that if inflation gets on the right track before the summer of 2016, some tapering appears in May, but then they are likely to miss their balance-sheet expansion target,” said Julien Manceaux, senior economist at ING Belgium SA in Brussels. “This is why we do not think there will be tapering before the program stops.”
To spur inflation, the ECB plans to expand its balance sheet to about 3.1 trillion euros from 2.3 trillion euros currently, in part by buying government bonds, agency debt and private securities. Economists in the survey predicted that level will be surpassed in 2016 and reach 3.4 trillion euros by the end of that year.
The pace of the euro area’s economic recovery should be evident this week with data forecast to show the inflation rate returning to zero in April, after four months of declining consumer prices. Unemployment is probably at the lowest rate in three years and economic confidence at the strongest since 2011, separate surveys show.
The ECB said yesterday that financial integration in the region has reached a level close to that before the sovereign debt crisis. (SD-Agencies)
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