Draghi Stays Strong on QE

The European Central Bank will wait until late this year before considering reining in its bond-buying plan, and won’t halt the program until well into 2018 at the earliest, economists say.

Even as eurozone inflation gathers pace, three-quarters of respondents in a Bloomberg survey said the ECB’s next major change to its stimulus will be announced no sooner than September. With underlying price pressures subdued, two-thirds of analysts said that decision will be to slow monthly purchases but extend them beyond December. None foresees any new measures when the Governing Council meets in Frankfurt on Thursday.

President Mario Draghi is likely to come under increasing political pressure in stronger economies such as Germany if he continues to add stimulus while prices climb and savers remain burdened with near-zero deposit rates. His concern lies more with core inflation and on the potential for shocks from national elections in the currency bloc, talks on the UK’s exit from the European Union and the start of Donald Trump’s US presidency.

“Rising inflation in Germany may rouse opponents of quantitative easing,” said Tomas Holinka, an economist at Moody’s Analytics Inc. “Nevertheless, we think that any discussion about lowering asset purchases is premature and expect the ECB will wait until price growth is sustainable and political uncertainty eases.”

The ECB’s account of its Dec. 8 policy meeting underscored the divisions in the Governing Council, with the 25-member body failing to reach a unanimous decision on QE. Officials eventually opted to prolong purchases by nine months to the end of the year and slow the monthly pace to €60 billion ($64 billion) from €80 billion, starting in April.

While most economists said the ECB’s next step will be to slow and extend QE again, about a fifth said purchases will be reduced but not prolonged. Just 4% expect the ECB to continue the program beyond 2017 at the currently planned pace.