European Central Bank (ECB) bosses moved a step closer to reducing asset purchases at the end of the year, discussing options to slow quantitative easing (QE) at their last meeting, according to minutes published today.
Economists expect the ECB to announce a slower pace of QE purchases at its next meeting on 26 October. The €60bn (£53bn) monthly purchases are currently set to stop in December, but the ECB is almost certain to extend the programme with smaller monthly purchases.
The ECB’s account said: “A view was put forward that conditions were increasingly falling into place that would allow the intensity of monetary policy accommodation to be adapted and would provide an opportunity to scale back the Eurosystem’s net asset purchases.”
The account shows the ECB economists discussed “general trade-offs” as it adjusts the programme, with a particular focus on the “choice between the pace and the intended duration” of purchases.
Economists expect the central bank to cut the programme to around €40bn in purchases per month, for around six months.
The Eurozone economy’s performance has been stronger than expected this year, allowing the central bank to consider reducing the scale of the QE programme, which was introduced to encourage investment and stimulate economic activity.
However, while growth and unemployment have both impressed, inflation remains well below the ECB’s two per cent target, at 1.5 per cent, giving some policymakers pause on whether withdrawing stimulus is appropriate.
The minutes said: “Inflation dynamics remained subdued and signs of progress towards a sustained adjustment in the path of inflation were generally judged to still be insufficient.”
ECB economists have also had to consider the steady rise in the euro over the past year, which threatens to reduce inflation by making imported products relatively cheaper.
The minutes said: “While it had to be recalled that the exchange rate was not a policy target for the ECB, it was very important for growth and inflation developments in the euro area.”
The minutes signalled a “broad agreement” among the ECB’s governing council – which includes the heads of the Eurozone central banks as well as president Mario Draghi and his other ECB colleagues – that October’s meeting would be the right time for “the bulk of the decisions”.