Published: Sat, October 22, 2016
Economy | By Melissa Porter

Duration of eurozone stimulus in focus as central bank meets

Mario Draghi signaled the European Central Bank probably won't stop its quantitative-easing program without tapering it first, indicating that the stimulus is likely to run past the now scheduled end-date of March 2017.

The ECB stimulus scheme, known as quantitative easing (QE), involves the purchase of public and private bonds at the rate of €80 billion (RM367.1 billion) per month, and is now set to end in March 2017.

The main message from ECB President Draghi was that the ECB would take further decisions at the December meeting.

European stocks clung to thin gains Friday, after equities rose in the prior session as European Central Bank President Mario Draghi hinted toward the possibility of more stimulus for the eurozone economy.

The ECB has pumped over €1tn into its quantitative easing scheme which has seen it buy bonds worth €80bn per month.

The bank has said the purchases will continue case until inflation rises to more acceptable levels from the current 0.4 percent, but has left the end date otherwise open.

"An abrupt end to the bond purchases?"

Confirming the unanimous expectation of economists in a Reuters poll, the European Central Bank kept the deposit rate at minus 0.4 percent on Thursday and maintained its guidance for rates to stay at their current or lower levels for an extended period.

Dudley, a permanent voter on policy and a close ally of Fed Chair Janet Yellen, said that the United States central bank will likely raise interest rates later this year if the USA economy remains on track.

The bank's benchmark "refi" refinancing rate has remained at an all-time low of zero percent since March. Beyond that, it is trying to support a modest economic recovery and lower unemployment of 10.1 percent.

"Our December decisions will tell you what we are going to do in the coming months", said Draghi.

One key question unnerving markets is whether the European Central Bank will eventually run out of bonds to buy, and have to end the stimulus before it wants to.

As expected, the central bank's governing council made a decision to keep the marginal lending facility rate at 0.25 percent, the deposit facility rate at -0.40 percent, and the main refinancing rate at 0 percent.

The Euro spiked higher after comments from Draghi that the council had not discussed boosting or extending the bond-purchase programme and bund prices also fell sharply.

The ECB's committees are now reviewing their options for tweaking the rules of the QE program to allay concerns that it will run out of bonds to buy.

Indeed, policymakers are increasingly emphasizing the negative side effects of sub zero rates, particularly for banks, suggesting that another rate cut may not be among the options to be discussed in December.

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