Some ECB Officials Wanted Looser Link Between QE Exit and Rates
(Bloomberg) -- Some European Central Bank officials want to loosen their commitment to continue bond buying until “shortly” before interest rates rise, according to officials familiar with the discussions.
The central bank’s new guidance on interest rates announced on Thursday potentially pushes the odds of a hike out by several years. Some officials are concerned that their current pledge on asset purchases indicates a similarly long-term commitment, according to the people.
The central bank confirmed on Thursday that bond-buying under a program launched in 2015 would end “shortly before it starts raising the key ECB interest rates.”
Some officials suggested removing the word “shortly” to be more flexible, according to the people. They ultimately decided to save changes on asset-purchase guidance for when they recalibrate the program, they said.
Policy makers are widely expected to discuss the issue in September. An ECB spokesman declined to comment.
The ECB’s choice of language on its stimulus plan is particularly pertinent since it raised its inflation goal to 2% this month, and pledged that interest rates would stay at present or lower levels until that goal came sustainably into sight in its projections.
Analysts pushed out their expectations for a rate hike following Thursday’s announcement, with ABN Amro saying interest rates could be on hold until 2024, and the asset purchase program continuing for much of that time span.
Governing Council members Jens Weidmann and Pierre Wunsch opposed the new wording signaling a longer period of record-low interest rates, Bloomberg reported on Thursday. Other officials agreed only on the condition that it only affects borrowing costs and not asset purchases.
Their French colleague Francois Villeroy de Galhau signaled on Friday that the ECB might not be rushed into an immediate decision in September as they still have three scheduled policy meetings before the end of the year.
“We’ll look at asset programs in the autumn” and “we will also look at forward guidance on the assets themselves,” he said in an interview with BFM Business radio. “We decided the guidance on interest rates yesterday, but on the assets themselves it will depend on the overall vision on asset-purchase programs.”
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