ECB chief economist sees June 14 meeting as ‘pivotal’

ECB chief economist Peter Praet confirmed that next week’s policy meeting will be pivotal for reaching a decision on when to end the institution’s bond-buying programme.

His comments reinforce the view that the ECB is close to settling the question of how long it will keep buying debt to support the eurozone economy. Policymakers are likely to use the June 14 gathering for their first formal discussion on winding down the programme, and could make a public announcement on when that will happen.

“It’s clear that next week the governing council will have to make this assessment, the assessment on whether the progress so far has been sufficient to warrant a gradual unwinding of our net asset purchases,” Mr Praet said in Berlin.

Bundesbank president Jens Weidmann said in a speech that market expectations for bond-buying to end this year are “plausible”.

In response, Italian bonds and stocks dropped as the country’s new government continued to unnerve investors and were flustered as ECB policymakers flagged the prospect of talks to end the debt-buying programme. “Jitters continue to resurface as markets face the new reality of the Italian populist government,” wrote Commerzbank.

And Greece decided to push back by a few months its plan for a new bond issue due to increased political risk in Italy that has rocked eurozone debt markets, government officials said.

“We see a chance that the ECB will announce an end-date to quantitative easing at the June meeting,” said Frederik Ducrozet, an economist at Banque Pictet. “Praet’s speech is providing us with a foretaste of the June statement, in my view, which should describe the ECB’s growing confidence over the inflation outlook and pave the way for a short tapering,” he said.

The remarks are significant because Mr Praet crafts the policy proposals for the governing council. He also acknowledged “waning market expectations of sizeable further expansions” of QE, and said they reflect an improvement in the inflation outlook. Bond purchases are currently intended to run at €30bn a month until at least September.

While some members of the council see next week as a real chance for policy change, it’s possible nothing will materialise. President Mario Draghi may use his press conference to signal an announcement will come in July.

Mr Praet said he wouldn’t prejudge the council’s conclusions. Even just having the conversation though would be a significant leap on the path to unwinding unconventional stimulus, after months of avoiding addressing the matter.

Bloomberg and Reuters

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