ECB to reduce bond-buying program

ECB to reduce bond-buying program

The European Central Bank has announced a tapering of its quantitative easing program, coming into effect in April 2017.

At last week’s meeting, the European Central Bank’s (ECB) Governing Council chose to continue its asset purchasing program at its monthly pace of €80 billion until the end of March, at which point monthly asset purchases will reduce to €60 billion.

The ECB said its will extend the program “until the end of December 2017, or beyond if necessary”.

Perpetual head of investment strategy for multi assets Matt Sherwood noted the change will increase the size of the ECB's quantitative easing program by a quarter.

“Notwithstanding their desire to please all market participants, the overnight decision and message was highly dovish in that the program’s duration and size will increase by 25 per cent to €2.3 trillion – at a minimum – and the next tapering will be in 2018 at the earliest,” he said.

Mr Sherwood also pointed out the ECB’s adjustments to its rules on which assets can be purchased were necessary for the bank to “avoid running out of assets to buy”.

“The central bank will now be allowed to buy debt with a yield below the deposit rate – this was previously a minimum eligibility requirement. In addition, the minimum duration of debt was halved to one year,” he said.

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