6 Mar 2015
How quickly might ECB’s QE end? – KBC
FXStreet (Barcelona) - The KBC Bank Research Team views that the asset purchase programme of ECB would depend entirely on the inflation in the Eurozone and ECB’s target for the same, most likely to end at September 2016.
Key Quotes
“Importantly, an envisaged inflation outturn of around 1.8% would seem to correspond to the definition of ‘a sustained adjustment in the path of inflation’. In turn, that would imply the goal of the asset purchase programme would be achieved, thereby allowing the programme to be ended.”
“With inflation, currently at ‐0.3%, there is still some considerable distance to travel along this path but if the projection of 1.5% envisaged for 2016 begins to look reasonable in early 2016, we might be far enough along the inflation ’path’ to suggest that the asset purchase programme would conclude in September of next year.”
“Of course, if inflation were to surprise significantly to the upside in the interim, market thinking could turn to the possibility of an earlier termination. In that event, the focus might quickly switch to what exactly is meant by the ECB’s indication of an ‘intended’ end date no earlier than September 2016 and how different this might be from a full commitment to continue to that point.”
“We think that the new ECB projections are intended to firmly signal’ as Mr Draghi indicated, that ‘the monetary policy decisions we are discussing today are final set of a series of measures’ and that the ECB fully expects them to be successful notwithstanding some uncertainty about the likely effectiveness of such unconventional measures.”
Key Quotes
“Importantly, an envisaged inflation outturn of around 1.8% would seem to correspond to the definition of ‘a sustained adjustment in the path of inflation’. In turn, that would imply the goal of the asset purchase programme would be achieved, thereby allowing the programme to be ended.”
“With inflation, currently at ‐0.3%, there is still some considerable distance to travel along this path but if the projection of 1.5% envisaged for 2016 begins to look reasonable in early 2016, we might be far enough along the inflation ’path’ to suggest that the asset purchase programme would conclude in September of next year.”
“Of course, if inflation were to surprise significantly to the upside in the interim, market thinking could turn to the possibility of an earlier termination. In that event, the focus might quickly switch to what exactly is meant by the ECB’s indication of an ‘intended’ end date no earlier than September 2016 and how different this might be from a full commitment to continue to that point.”
“We think that the new ECB projections are intended to firmly signal’ as Mr Draghi indicated, that ‘the monetary policy decisions we are discussing today are final set of a series of measures’ and that the ECB fully expects them to be successful notwithstanding some uncertainty about the likely effectiveness of such unconventional measures.”