European Central Bank to stick with quantitative easing policy

The European Central Bank (ECB) will keep policy unchanged when it meets on Thursday, even as pressure builds on the central bank to do more, according to a majority of euro money market traders polled by international news agencies Reuters and Bloomberg.

The eurozone’s central bank may discuss technical adjustments to its asset purchase scheme but a decision could be deferred until December, sources familiar with the discussion told Reuters last week.

Eurozone inflation was just 0.4% in September on an annual basis, nowhere near the ECB’s 2% target ceiling, but 15 of 19 traders in yesterday’s Reuters poll said the ECB would keep policy unchanged on Thursday.

The other four traders expect the ECB to announce an extension to its monthly bond-buying beyond its current end-date in March 2017.

When asked what the ECB would do by year-end, 11 of 19 traders said the ECB would make no changes to policy.

The remainder said it would extend quantitative easing beyond March 2017, increase the amount of monthly asset purchases, or both.

Currently, the ECB buys bonds worth €80bn each month.

The regular survey showed that banks will take €31bn from the ECB at its weekly refinancing operation, similar to the €32.9bn maturing from last week.

Similarly, a Bloomberg poll suggested that with consumer prices barely rising and the recovery still fragile,the ECB will prolong bond-buying.

That decision is more likely to be taken in December than at this week’s policy meeting, and most analysts say the programme will not start to be wound down until the second half of 2017.

Even then, the ECB is only expected to act if euro-area inflation is holding above 1.5%.

Officials are under pressure to reveal their strategy for QE, but while questions have surfaced about how the ECB will ultimately reduce the stimulus, for now the focus is on how to ensure purchases can proceed amid increased scarcity in some markets.

“Central bankers have to think about how long the QE programme should and can last, and it’s very important for Draghi to sound flexible,” said Maxime Sbaihi, an economist at Bloomberg Intelligence in London.

“There are still more doves than hawks in the Governing Council, meaning that the balance of power is consistent with more easing. Any tapering decision would only come after a time extension.”