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Aug 10, 2017 01:22 PM IST | Source: Reuters

ECB slightly more likely to announce QE change in September vs October

The central bank left its ultra-easy monetary policy unchanged in July and said it had not discussed anything on its 60 billion euros of monthly asset purchases, but signaled the discussions would come "this autumn".

ECB slightly more likely to announce QE change in September vs October

The European Central Bank is slightly more likely to announce a change to its asset purchases programme in September than October, a Reuters poll found.

The central bank left its ultra-easy monetary policy unchanged in July and said it had not discussed anything on its 60 billion euros of monthly asset purchases, but signaled the discussions would come "this autumn".

Twenty-eight of 50 economists surveyed Aug 7-9 said they expect the central bank to make an announcement in September, while 15 said it would wait until October. Most of the remaining said some time in early 2018.

"The ECB has flagged 'autumn' as the period in which they will decide on the asset purchase programme," said Elwin De Groot, senior market economist at Rabobank.

"We believe this means that the Governing Council will outline the intentions it has beyond this year in September or possibly October, whilst leaving the December meeting for any details, such as the exact amount of the initial adjustment."

ECB policymakers see October as the most likely month to decide on its quantitative easing programme and flagged December as too late, based on four sources with direct knowledge of a discussion, published shortly after the July meeting.

Expectations for the ECB to start moving away from its aggressive quantitative easing policy have been driven by robust growth in the euro zone, with the economy outperforming both Britain and United States in the first half of 2017.

The latest Reuters consensus for 2.0 percent growth this year is the highest since polling began for the period over two years ago. The euro zone economy is forecast to grow 0.4 percent each quarter from now until the end of next year.

But inflation, which the ECB targets at close to but just under 2 percent and was last reported at 1.3 percent, is not about to accelerate. Expectations have dimmed slightly in the latest poll compared with July.

Inflation is forecast to average 1.5 percent this year and 1.4 percent next, compared with 1.5 for both years in the July poll. The range of forecasts was largely unchanged.

While inflation is not expected to reach the ECB target at least until 2020, most economists do not expect that to deter the central bank from moving away from its ultra-easy policy, which has already bloated the central bank's balance sheet to more than 2 trillion euros.

When asked whether the ECB should scale back its monthly bond-buying programme before inflation approaches its target, more than three-quarters of the 50 economists said "yes".

"If the ECB does indeed proceed with a form of tapering in early 2018, this will not be driven by a substantially more hawkish feeling in the Governing Council. We believe the decision to taper is most likely driven by the constraints built into the current programme," said Rabobank's Elwin De Groot.

De Groot and many other economists have repeatedly warned that the ECB will eventually run out of bonds to buy.

The central bank is already stretching its rules to carry out its bond-buying scheme, according to the ECB's own data published on Monday.

What could also complicate the policy picture further is the euro's strength. The single currency has already risen over 12 percent so far this year and is forecast in a separate Reuters poll to close the year higher than where it started.

But 30 of 43 respondents who answered an extra question said they did not think a rising euro will threaten the bloc's economic recovery. Thirteen said it was a risk.

"The current amount of appreciation will not be enough to derail the economic recovery but a continuation well beyond $1.20 - not expected by us - would clearly change the balance of risks," said Elmar Voelker, rates strategist at LBBW.
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