ECB to extend APP to December 2017
08 December 2016 Frankfurt
Image: Shutterstock
The European Central Bank (ECB) will continue with a reduced version of it asset purchase programme (APP) until December 2017, after the original March 2017 cut-off.
The current monthly pace of €80 billion worth of purchases will be maintained until the end of March 2017, at which point the monthly target will drop to €60 billion, until the end of December 2017.
Speaking after the ECB governing council’s meeting, president Mario Draghi explained that the programme would end in December “or beyond, if necessary, and in any case until the governing council sees a sustained adjustment in the path of inflation consistent with its inflation aim”.
Crucially, the council built in two key areas of flexibility into the policy statement, by leaving the door open to both extend the duration of the APP, as well as returning to the €80 billion monthly target if the European economic environment deteriorates.
The adjusted programme will also see the maturity range of the public sector purchase programme broadened by decreasing the minimum remaining maturity for eligible securities from two years to one year.
Purchases of securities under the APP with a yield to maturity below the interest rate on the ECB’s deposit facility will also be permitted.
In a statement on the policy decisions, the ECB said: “Today’s extension of the APP has been calibrated to preserve the very substantial degree of monetary accommodation necessary to secure a sustained convergence of inflation rates towards levels below, but close to, 2 percent over the medium term.”
“Together with the sizeable volume of past purchases and forthcoming reinvestments, it ensures that financial conditions in the euro area will remain very favourable, which continues to be crucial to achieve our objective.”
The council also confirmed that interest rates for refinancing, marginal lending and deposit facilities will remain unchanged at 0 percent, 0.25 percent and –0.4 percent respectively.
The ECB expects interest rates to remain at current levels for “an extended period of time, and well past the horizon of the net asset purchases”.
Shilen Shah, bond strategist at Investec Wealth & Investment, commented: “Both the GDP and CPI forecasts are largely unchanged in the central bank’s updated staff projection, with Draghi continuing to note the downside risk within its figures. The market seems to be somewhat disappointed by the central bank’s so-called slower for longer strategy, with the German 10-year yield up 8.5 bps on the day and the Italian 10-year yield up 14 bps.”
The current monthly pace of €80 billion worth of purchases will be maintained until the end of March 2017, at which point the monthly target will drop to €60 billion, until the end of December 2017.
Speaking after the ECB governing council’s meeting, president Mario Draghi explained that the programme would end in December “or beyond, if necessary, and in any case until the governing council sees a sustained adjustment in the path of inflation consistent with its inflation aim”.
Crucially, the council built in two key areas of flexibility into the policy statement, by leaving the door open to both extend the duration of the APP, as well as returning to the €80 billion monthly target if the European economic environment deteriorates.
The adjusted programme will also see the maturity range of the public sector purchase programme broadened by decreasing the minimum remaining maturity for eligible securities from two years to one year.
Purchases of securities under the APP with a yield to maturity below the interest rate on the ECB’s deposit facility will also be permitted.
In a statement on the policy decisions, the ECB said: “Today’s extension of the APP has been calibrated to preserve the very substantial degree of monetary accommodation necessary to secure a sustained convergence of inflation rates towards levels below, but close to, 2 percent over the medium term.”
“Together with the sizeable volume of past purchases and forthcoming reinvestments, it ensures that financial conditions in the euro area will remain very favourable, which continues to be crucial to achieve our objective.”
The council also confirmed that interest rates for refinancing, marginal lending and deposit facilities will remain unchanged at 0 percent, 0.25 percent and –0.4 percent respectively.
The ECB expects interest rates to remain at current levels for “an extended period of time, and well past the horizon of the net asset purchases”.
Shilen Shah, bond strategist at Investec Wealth & Investment, commented: “Both the GDP and CPI forecasts are largely unchanged in the central bank’s updated staff projection, with Draghi continuing to note the downside risk within its figures. The market seems to be somewhat disappointed by the central bank’s so-called slower for longer strategy, with the German 10-year yield up 8.5 bps on the day and the Italian 10-year yield up 14 bps.”
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