The European Central Bank (ECB) today announced the end of its quantitative easing (QE) bond purchases, in a landmark moment in the Eurozone's drawn-out economic recovery.
The ECB said it will reduce the pace of asset purchases from €30bn (£26.4bn) per month to €15bn from September to December, in a press released today after its latest monetary policy meeting in Riga, the capital of Latvia.
At the end of December, "net purchases will then end", the statement said.
The ECB also changed its guidance on the future path of interest rates; it left the rates unchanged, but said this will continue "at least through the summer of 2019", a more definite time period than previously given. Draghi's term as president ends in October 2019.
ECB president Mario Draghi struck a relatively cautious tone in a press conference following the decision, saying that he "doesn’t want to underplay the existing risks" to the central bank's outlook. He highlighted an "undeniable increase in uncertainty […] mostly on geopolitical issues", in reference to rising protectionist sentiment in major economies.
The ECB emphasised that the end of the programme will be "subject to incoming data", and that the stock of government and corporate bonds owned by the bank will remain steady "for an extended period of time" to avoid a sell-off.
The euro weakened against the US dollar in spite of the relatively hawkish announcement as investors focused on the cautionary notes in the statement, falling below of $1.168, after breaking above $1.184 immediately after the decision's publication. The yield on German 10-year bonds, which moves inversely to prices, fell slightly to a low of 0.433 at the time of writing.
The central bank defied concerns over political uncertainty in Italy and the threat of an escalation in a trade war in an announcement which will be seen as a symbolic moment in the drawn-out recovery from the financial and Eurozone sovereign debt crises. Draghi said he did not see "any redenomination risk", referring to the potential exit of Italy from the euro, although noted that risks from protectionism were "more prominent".
Recent economic data have been "weaker, but remain consistent with ongoing solid and broad-based economic growth", Draghi said. QE could be used again as a "normal tool of monetary policy" in the future if economic conditions worsen, he said.
The central bank's economists revised down their projections for growth in the course of 2018, with GDP expansion of 2.1 per cent expected this year, down from an earlier forecast of 2.4 per cent.
Investors had been awaiting guidance on the future of the asset purchase programme, QE, after chief economist Peter Praet last week said that policymakers at the meeting would discuss the future of the programme.