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ECB Considering Cutting QE Purchases by Half

The euro strengthened as much as 0.2% against the US dollar on Friday.The euro strengthened as much as 0.2% against the US dollar on Friday.

European Central Bank officials are considering cutting their monthly bond buying by at least half starting in January and keeping their program active for at least nine months, according to officials familiar with the debate.

Reducing quantitative easing to €30 billion ($35.49 billion) a month from the current pace of €60 billion is a feasible option, said the officials, who asked not to be identified because the deliberations are private, Bloomberg reported.

While the central bank’s governors are split on the need to identify an end date for purchases, a pledge to keep buying bonds until September—with the proviso that it could be extended if needed—may offer grounds for compromise, they said.

The euro strengthened as much as 0.2% against the US dollar on the news. It was trading at 1.184 in Frankfurt on Friday.

Policy makers led by President Mario Draghi are becoming increasingly confident that ECB policy makers will on Oct 26 agree to the specifics of how much debt the eurozone’s central banks will buy in the coming year. After more than 2½ years of trying to revive the region’s economy through bond purchases, some governors see the recent period of robust growth as a reason to rein in the support. Others are concerned that inflation remains too weak.

Any changes to the sum and time frame of quantitative easing would still fit into the ECB’s present guidance on monetary policy, which commits the ECB to promise “a sustained adjustment in the path of inflation consistent with its inflation aim.”

It also pledges that if “the outlook becomes less favorable, or if financial conditions become inconsistent with further progress toward a sustained adjustment in the path of inflation, the governing council stands ready to increase the program in terms of size and/or duration.”

Council members have yet to officially discuss options.  The institution’s chief economist Peter Praet has hinted on several occasions that he would prefer to allow QE to continue at a slower pace for longer if markets stay calm, arguing that a substantial amount of aid is still needed to spur inflation toward the ECB’s goal of running inflation just below 2%. He also said this week that officials should consider making public some of the details on how maturing debt bought under QE is reinvested.

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