The euro sign sculpture stands near the former European Central Bank headquarters in Frankfurt, Germany. (Photographer: Krisztian Bocsi/Bloomberg)

ECB to End Bond Buying in December in Watershed for Stimulus

(Bloomberg) -- The European Central Bank will halt its bond-buying program by the end of this year -- a landmark decision that sets the euro area up for an exit from years of massive monetary support.

The euro and bond yields dropped after the ECB said it’ll phase out the stimulus tool with 15 billion euros ($17.7 billion) of purchases in each of the final three months of the year. It also pledged to keep interest rates unchanged at current record lows at least through the summer of 2019. President Mario Draghi will explain the decision in a news briefing at 3:30 p.m. in Riga, Latvia, where the Governing Council met.

Read real-time analysis of the ECB meeting in our TOPLive blog here

The End of an Era

  • Bond buying to continue at 30 billion euros a month until September
  • Purchases to be phased out with 15 billion euros in each of October, November and December
  • Maturing debt will be reinvested for an extended period after end of net asset purchases
  • Interest rates will stay at current levels at least through the summer of 2019, or longer if needed for inflation
  • End of net asset purchases remains subject to incoming data

The euro was down 0.2 percent at $1.1767 at 1:53 p.m. Frankfurt time.

With the decision to retire its key crisis-fighting tool, the ECB is betting that the euro-area economy is robust enough to ride out an apparent slowdown amid risks including trade tariffs and nervousness that Italy’s populist government will spark another financial crisis.

The announcement comes only hours after the Federal Reserve raised U.S. interest rates for the second time this year, highlighting how a decade of easy money globally is gradually coming to an end. The People’s Bank of China opted not to follow the Fed in raising borrowing costs, and the Bank of Japan is expected to maintain its stimulus when it meets on Friday.

Draghi will provide updated economic projections at his news briefing, which may help him address any questions over whether policy makers have acted too hastily given a spate of disappointing data in recent weeks. While almost a third of economists in a Bloomberg survey predicted he’d set an end-date for purchases after the Riga meeting, 46 percent said he’d wait until the next policy session in July.

ECB Interest Rates
Deposit RateMinus 0.4 percent
Main Refinancing RateZero
Marginal Lending Rate0.25 percent

It is four years to the month since the ECB became the first major central bank to cut one of its key rates below zero. Market expectations are currently for rates to start rising around the middle of next year, and some Governing Council members recently said such an outlook is reasonable.

©2018 Bloomberg L.P.