Published: Sun, June 17, 2018
Markets | By Noel Gibbs

Cautious ECB slams Euro, boosts stocks - CMC Markets

Cautious ECB slams Euro, boosts stocks - CMC Markets

The bank's bond-buying stimulus programme, also known as "quantitative easing" (QE) is credited with having helped the eurozone economy to recover from the region's financial crisis.

With sizeable stock of acquired assets, worth 2.4 trillion euros as of May, together with reinvestments of the principal payments from maturing securities purchased after the end of asset purchase program, as well as forward guidance on interest rates, the European Central Bank intends to ensure the ample degree of monetary easing for an extended period of time.

The central bank moves, he said, are "another step on the way to removing the extraordinary global monetary stimulus over the last decade". At that point, it will have created nearly €2.7 trillion ($3.1 trillion) in new money for the program.

The benchmark main refinancing rate remains at zero and the deposit rate at minus 0.4 per cent.

But it cautioned that the plan was "subject to incoming data". The key European Central Bank lending rate stands at 0%.

The ECB plans to keep interest rates on hold through at least the summer of next year while announcing that it would end its purchases of bonds - meant to boost the euro-area economy - in December 2018.

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The overall weakness in the euro gave a lift to the dollar, which hit its highest against a basket of currencies since November 2017.

In turn, those people and firms will spend money, powering economic growth and, so the theory goes, inflation.

The size of the stimulus was enormous: At €2.7 trillion, it rivals the entire value of the French economy a year ago.

"Despite the ECB signalling an upcoming end to QE, the market has interpreted its new time-specific forward guidance dovishly and sent the euro packing", said Miles Workman, an economist at ANZ Bank New Zealand, in a note.

"Looking ahead, underlying inflation is expected to pick up towards the end of the year and thereafter to increase gradually over the medium term, supported by our monetary policy measures, the continuing economic expansion, the corresponding absorption of economic slack and rising wage growth".

There's been an "unquestionable increase in the geopolitical uncertainty", he said, citing an upsurge in protectionist trade policies.

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As it manages a currency shared between 19 countries, the ECB's programme faces more constraints than those at the Federal Reserve in the United States, the Bank of England or the Bank of Japan.

Draghi said there would be no prospect of an increase in the ECB's key lending rate - now 0.0% - until next summer at the earliest.

The stimulus tool will be phased out with €15 billion ($17.7 billion) of purchases in three monthly payments starting in October, Draghi said after his Governing Council convened in Latvia on Thursday.

There has been "some moderation" in early 2018, Draghi said in April, but "growth is expected to remain solid and broad-based".

Instead markets will likely look to next week with the Bank of England (BoE) June policy meeting and the Eurozone's latest PMI figures in focus.

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