Mario Draghi said the European Central Bank will study how to ensure its quantitative-easing program doesn’t run out of bonds to buy, while playing down the need to commit to fresh stimulus just yet.
With only six months to go until the scheduled end of QE, the ECB president needs to weigh signs that the region’s recovery is losing momentum against increasing concern about asset scarcity. The central bank has missed its target of inflation just under 2% for over three years and updated projections on Thursday showed it doesn’t foresee reaching the goal before late 2018, Bloomberg reported.
“The assessment was that, for the time being, the changes are not so substantial as to warrant a decision to act,” Draghi said at a press conference in Frankfurt. “The main theme was to make sure that the program and decisions we took in March can be implemented in the new constellation of interest rates, which clearly have restricted the eligibility universe.”
The 25-member governing council earlier decided to keep its main refinancing rate at zero, the deposit rate at minus 0.4% and asset purchases at around €80 billion ($90 billion) a month until March 2017, as predicted in a Bloomberg survey.
While German bonds declined, the 10-year yield remained below zero, and within a range seen in the previous two days. Declines in similar-maturity Spanish and Italian bonds pared throughout the day as the initial knee-jerk reaction faded, while the euro, which earlier climbed as much as 0.8% was 0.3% higher at $1.127 in Frankfurt.
With more than 60% of German sovereign debt with yields below the deposit rate, and thus ineligible for purchase under the ECB’s self-imposed rules, the institution is faced with the risk of running out of debt should it decide to extend the duration of QE.
Full Mandate
“The governing council tasked the relevant committees to evaluate the options that ensure a smooth implementation of the purchase program,” Draghi said, without divulging further details of what they might consider. “The committees have a full mandate. They will look at all the options that might be used to redesign the program, and then of course we’ll have a discussion in the council.”
Analysts have proposed raising limits on individual bond purchases, deviating from the so-called capital key, which effectively means buying more from highly indebted nations such as Italy, or even scrapping the deposit-rate floor altogether.
The ECB confirmed its outlook for consumer-price growth in 2018 at 1.6%, while slightly cutting the 2017 outlook to 1.2% from 1.3%. It also revised down forecasts for eurozone growth in each of 2017 and 2018 to 1.6% from 1.7%, while raising the prediction for the current year to 1.7% from 1.6%.
