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ECB chief Mario Draghi says monetary policy is necessary for economic recovery. He did not seem overly concerned,  giving markets the green light to push the euro higher.
ECB chief Mario Draghi says monetary policy is necessary for economic recovery. He did not seem overly concerned,  giving markets the green light to push the euro higher.

ECB Policymakers Agree on Cutting Stimulus

Across the eurozone there are huge differences in the performances of member states. Italy, Portugal and Spain are still below levels seen before the crisis in 2008. And it is feared there could be further economic losses due amid Brexit

ECB Policymakers Agree on Cutting Stimulus

European Central Bank policymakers agreed at their meeting on Thursday that their next step would be to begin reducing their monetary stimulus, three sources with direct knowledge of the discussion said.
After 2-1/2 years of massive money-printing, the ECB is taking baby-steps toward weaning the eurozone off the easy cash that has helped boost the economy but is also blamed for creating bubbles in richer countries such as Germany, Reuters reported.
The ECB left its policies unchanged on Thursday. But President Mario Draghi suggested October would be decision time regarding the future of the €2.3 trillion ($2.8 trillion) bond-buying program. Policymakers debated various scenarios, he said.
Four options being considered for reducing its bond buying, according to sources who asked not to be named, include cutting its monthly buying from the current €60 billion to 20 or 40 billion from the start of 2018, with the scheme running for another six or nine months.
The decision was likely to come at the Oct. 26 meeting and should be backed by a broad consensus, the sources said. One suggested a compromise could be found for setting monthly purchases somewhere between €20 billion and €40 billion.
The sources added that much of the focus of the discussion was on the overall amount of the purchases, including the reinvestment of proceeds from maturing bonds, which will slowly rise toward €15 billion per month next year, the sources said.
The ECB declined to comment on the report, which pushed the euro and government bond yields in the single currency bloc higher.

Draghi Hits Back at Critics
ECB this week raised the bloc's growth forecast to 2.2 from 1.9% in 2017, and to 1.8% from 1.7% in 2019, suggesting there will be less need for monetary support. But at the same time, the ECB chief Draghi in effect said monetary policy is necessary for the economic recovery.
Across the eurozone there are huge differences in the performances of member states.  Italy, Portugal and Spain are still below levels seen before the crisis in 2008. And it is feared there could be further economic losses due amid Brexit.
The higher euro is also a concern for the bloc's economy, amid concerns exports and inflation could fall.
Draghi this week admitted the exchange rate is being monitored and is a source of uncertainty.  However, the ECB chief did not seem overly concerned, giving markets the green light to push the euro higher.
Against this background, the policymakers are in no hurry to make changes to the money printing program. Therefore, it seems the return to 'normal' monetary policy is still some way off.
This is likely to disappoint German Finance Minister Wolfgang Schaeuble, who has long called for the end of the so-called Quantitative Easing program. This week he said: “Unusual monetary policy implies it is not usual or normal—we should get back to a normal monetary policy. We have come back to a normal situation much quicker than people thought.”
Deutsche Bank chief executive John Cryan has also called for an end to cheap money, which he suggested is ceasing dangerous asset bubbles. He recently said: "The era of cheap money in Europe should come to an end—despite the strong euro. We are now seeing signs of bubbles in more and more parts of the capital market."

Euro Jumps
The euro strengthened over one percentage point against the dollar, hitting its highest level since January 2015, following the ECB meeting, despite them leaving monetary policy on hold. The euro also strengthened against the pound, as Draghi signaled a decision on their QE program would likely come next month.
The ECB has recently expressed concerns that the current strength of the euro could hamper the continent’s long-awaited economic recovery. A stronger euro makes eurozone countries less competitive at an international level as exports become more expensive, while imports become cheaper.
The increase in the value of the euro also impacts inflation, making imported goods cheaper and is likely contributing to the eurozone’s relatively low inflation. The current rate of annual inflation in the eurozone is around 1.5%, still below the central bank’s target of around 2%.

 

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