The ECB in « phase out modus »

27th June 2018

Daniel Pfund, Senior Financial Analyst

Last week the European central bank (ECB) confirmed, via its president Mario Draghi, that it will stop buying assets by the end of the year. This plan started in January 2015 and had as objective to help inflation to rise to its target of 2%. Today the inflation within the Eurozone has reached 1.9%, close enough to the target. The ECB will hence continue to buy securities for 30 billion Euros a month until the end of September. For the last quart, the ECB will reduce its monthly net purchases to 15 billion Euros.

However the ECB has also decided to reinvest the amounts of bonds coming to maturity, for an undefined period of time – a point which perhaps is underestimated. The amounts are indeed not known, but some economists estimate that these bonds represent a total of about 160 billion for 2019. And finally the ECB has confirmed that it will not change its short term rates until at least summer 2019. The short term impact of these announcements has been a weakening of the Euro, which for example lost 2% against the US Dollar.