ECB Is Said to See Chance QE Plan Not Fully Ready Until December
(Bloomberg) -- European Central Bank policy makers may not be ready to finalize their decision on next year’s bond-purchase plan until just a couple of weeks before the current program expires, according to euro-area officials familiar with the matter.
While the Governing Council is set to hold its first formal talks next week on its stimulus path for 2018, there is no appetite to rush into a decision then and the complexity of the topic means the full details of the plan might not be settled at the Oct. 26 policy meeting, the people said. They asked not to be named because such informal discussions are confidential.
Policy makers also accept that they shouldn’t surprise investors by holding back every detail on the future of QE until the final session of the year on Dec. 14, two of the people said. That suggests the market is still likely to receive general indications on the plan for asset purchases after one or both of the next two meetings. An ECB spokesman declined to comment.
The risk that the decision goes to the wire on QE, currently set at 60 billion euros ($71 billion) a month of debt-buying until the end of December, reflects the major communication challenge facing the 25-member Governing Council. Robust economic growth is bolstering calls for buying to be wound down as soon as possible, yet still-weak inflation in the currency bloc and continuing fragility in some peripheral economies are making some officials nervous of sending definite signals on how and when stimulus will be pared back.
The rise in the euro after President Mario Draghi’s speech in Portugal in June -- when he spoke of “reflationary forces” -- and the currency’s jump again last week when he opted not to try to talk it down in a speech in Jackson Hole, Wyoming, shows how sensitive markets are. That’s a reason for extreme prudence, with changes to communication and policy likely to move even slower than originally expected, two of the people said.
ECB Governing Council member Ewald Nowotny said on Friday that he wouldn’t “dramatize” the euro’s gain, but added that policy normalization can’t be about “abruptly stepping on the brake.” It’s “sensible to see how to get off the accelerator and how to carefully initiate normalization,” he said.
Vice President Vitor Constancio said in a separate speech that while the euro area’s economic recovery is proving to be increasingly robust, the region suffers from the same phenomenon as most of the rest of the world in that a “strong worldwide reflationary phase that seemed likely at the beginning of the year has not materialized.”
A December announcement would allow the ECB to tie its decision to updated forecasts for growth and inflation, which will be published at that meeting. The central bank has frequently used revisions to the outlook to justify policy changes.
It would also echo the U.S. Federal Reserve’s strategy in 2013, though the ECB would be working on a tighter timeframe. The Fed started formally debating how to wind down its bond purchases in June that year, a month after then-Chairman Ben Bernanke shocked markets with a reference to potential tapering. The debate ran over the summer and fall, laying the groundwork for the December 2013 announcement that tapering would start the following month.