(Bloomberg) -- European Central Bank policy makers implicitly assume their newly-extended bond-buying program will be tapered to a halt by the end of next year so long as the inflation outlook improves, according to officials with knowledge of the discussions.
The Governing Council, which met on Thursday, focused on the first nine months of next year for its quantitative-easing program and didn’t formally debate options for what to do after that, said the people, asking not to be named because the talks are private. While tapering would be possible, extending the program without changing the pace of purchases is also a credible option if inflation doesn’t show sufficient progress, one of them said.
Whether to set a firm end-date on the bond-buying program has been a key sticking point for some officials. The council agreed to cut monthly purchases in half, to 30 billion euros ($35 billion), and President Mario Draghi said that a “large majority” backed the decision to include a pledge to extend again if needed. He added that “it’s never been our view that things should stop suddenly.”
Bundesbank President Jens Weidmann signaled on Friday that he disagreed with the decision to leave QE open-ended.
“From my point of view, a clear end of net purchases would have been appropriate,” Weidmann said in a speech at the German embassy in Paris. “The development of domestic price pressures shown in projections is in line with a trajectory that will take us toward our definition of price stability.”
Thursday’s meeting came after governors were presented with several scenarios at a seminar on the previous day, according to the people. Those included a reduction to 40 billion euros a month through June, and a 12-month tapering through December, similar to the Federal Reserve’s exit from its own program. The latter scenario wasn’t considered a realistic policy option, one of the people said.
Governors also looked at a three-month scenario that would see buying after September tapered in monthly steps to 20 billion euros, 10 billion euros and 5 billion euros, another official said. An ECB spokesman declined to comment on the Governing Council’s deliberations.
Draghi’s key message was that the ECB has to stay prudent, persistent and patient while euro-area inflation remains subdued. The central bank’s own forecasts don’t see consumer-price growth returning to the goal of just-under 2 percent until at least late 2019.
Interest rates will remain “at the present levels for an extended period of time, and well past the horizon of our net asset purchases,” the ECB said. That means that if tapering is undertaken after September, the first increase in borrowing costs may not arrive until well into 2019. Draghi steps down in October that year, and so could finish his term without ever raising borrowing costs.
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