European Central Bank cuts quantitative easing bond purchases in half

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Mario Draghi Holds Final Press Conference In Old ECB Building
Mario Draghi said he is more confident on the inflation outlook (Source: Getty)

The European Central Bank (ECB) today announced it will reduce its monthly asset purchases as it takes another step on the path towards ending the historic period of quantitative easing (QE) from major central banks.

The ECB will buy €30bn (£27bn) in assets every month until September 2018, a nine-month extension which was exactly in line with consensus expectations. Policymakers are keen to avoid the "taper tantrum" chaos experienced in the US when asset purchases were unexpectedly reduced.

The bond purchases, intended to stimulate the economy, have proceeded up to now at €60bn per month.

Read more: DEBATE: ­­Is it time for the ECB to end its stimulus programme?

At a press conference after the announcement, Draghi said the cut in QE reflected "growing confidence in the gradual convergence of inflation rates towards our inflation aim".

Growth in the Eurozone economy has continued to impress over the course of 2017. Meanwhile, inflation has started to pick up, although annual price rises of 1.5 per cent in the year to September are still well below the ECB's mandated target of two per cent. Draghi noted that "domestic price pressures are still muted overall".

In its statement today released by policymakers in Frankfurt, the ECB insisted it could extend the QE programme further, a dovish move, to head off a further strengthening of the euro which could drag back on inflation.

Read more: Potential for dovish surprise from ECB to keep investors guessing

The ECB also emphasised it will continue to reinvest the proceeds of maturing securities for an "extended period of time after the end of its net asset purchases, and in any case for as long as necessary".

The euro fell by more than 0.5 per cent against the US dollar immediately after the release, hitting lows of $1.1738, as investors took in the dovish message. The central bank also left interest rates unchanged, reiterating that they will remain low "for an extended period of time".

Paul Hatfield, global chief investment officer at Alcentra, part of BNY Mellon, said: "Draghi left himself a safety option to crank the printing press back up if things go south for the Eurozone in macro terms, so no rates rises seem likely for at least another 12 months.”

Read more: Mario Draghi sounds confident note on inflation in Europe

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