The european central Bank has extended nine months, until the end of 2017, the program of purchase of securities, the so-called Qe, but has reduced starting from April the monthly amount from 80 to 60 billion euros, surprising the financial markets. The president of the Ecb Mario Draghi has insisted, however, that the decision to reduce the monthly amount is not the prelude to the end of monetary stimulus in an economic framework in which the recovery of the euro area is strengthening, but remains modest and inflation is still below the target of closer to 2 percent.
government Securities: sell long, buy short
Draghi has repeatedly said that the "tapering", i.e. the gradual reduction of purchases, up to zero, as did the Federal Reserve, was not even discussed. The Ecb, he said, will remain on the market for a long time with the goal of keeping rates low. The changes are “calibrated so as to maintain a substantial degree of monetary stimulus”. The Ecb will also continue to reinvest the proceeds of maturing securities purchased so far with the Qe, providing a further boost.
The new macroeconomic forecasts of the Ecb, published yesterday, are substantially equal to those of last September (growth in the eurozone and 1.7% in 2016 and 2017, and 1.6% in 2018 and 2019, with inflation at 0.2% this year, 1.3% next, to 1.5% in 2018), but for the first time indicate the estimates for 2019, when inflation should reach 1.7%, that, however, is not yet sufficient to achieve the objective. “We have to persist,” said Draghi. The Ecb also notes that, even if the price of oil has done and will do, especially at the end of this year, raise the level of general inflation, the basic (excluding energy and food) “does not show signs of increase”. The risks to growth remain to the downside.
Ecb’s extension of Qe at the end of 2017. Reduced purchases to 60 billion monthly
The Ecb, however, has kept a door open to increase new purchases of securities, if the situation were to worsen in 2017. We are “pragmatic and flexible”, he said to the Dragons, because uncertainty prevails everywhere, above all in the political sphere, even if the markets have reacted less than expected, in his opinion, the Brexit, the election of Donald Trump and the result of the Italian referendum. In any case, according to Draghi, Qe can be considered without a final maturity, the Ecb has repeated the formula according to which the purchases will continue as long as the council does not see a adjustment is supported for the path of inflation towards the target, then, if necessary, after 2017. Many observers of the market believe, however, that what yesterday is a signal that by 2018, the Qe will be gradually demobilized.
Dragons, confident that Italy will know what to do about the banks
The decision to compromise, Qe longer but for amounts less than, probably a reflection of the divisions in the council of the Ecb who voted for the measures “with a consensus very, very large”, according to Draghi, but with the opposition, among other things, the president of the Bundesbank, Jens Weidmann, according to what is immediately reported by the newspaper “Frankfurter Allgemeine Zeitung”. Significantly, the extension of the Qe of nine months allows the board to not have to face again the question until after the German elections, which will be held probably in September 2017, when, in the election campaign, its monetary policy may become an easy target of his many opponents in Germany.
The amount of monthly purchases is returned to its original level of $ 60 billion. In march last he was led to 80, recalled to the Dragons, because there were risks of deflation, which now have almost disappeared, and the economic prospects were more obscure. An indication of the possible change came last week when, in an interview to "El Pais", the central banker Italian had said that the same degree of stimulation you can get with different instruments, amounts and duration.
The council has launched some technical changes in order to overcome the scarcity of securities to buy, especially the germans, and the life minimum remaining bonds increases from two years to one year. This should have the effect of a yield curve steeper, which is well seen from the banks. In case of need, in addition, can also be purchased securities under the deposit rate, today a negative 40 basis points.
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