Will the end of QE come along with ECB’s inflation target?

Klaus Regling, Mario Draghi, Jean-Claude Juncker, Antonio Tajani and Jeroen Dijsselbloem (from left to right)
Date: 02/05/2017. Location: Brussels – EC/Berlaymont. © European Union , 2017 Source: EC – Audiovisual Service Photo: Jennifer Jacquemart

The European Central Bank (ECB) will end its Quantitative Easing (QE) programme within the year as the Eurozone continues growing. However, the inflation rate which is not increasing as much as the ECB officials would like, stands as a barrier to its monetary policy.

According to Reuters, sources close to the ECB mentioned that the central bank is not going to change its policy soon enough because rate regulators need time to evaluate the outlook of the economy and the euro.

The Governing Council member Ardo Hansson stated on the issue last Monday that the ECB should not have any issue at stopping the injection of money to the economy after September 2018. Mr Hansson also pointed that the way of doing that is «in one step».

QE’s future

How long will the ECB use QE as a monetary tool? Is it going to last till September or will Mario Draghi put an earlier closure to this?  The ECB showed last week that it is determined to revise its policy in the beginning of 2018. But it is more likely to take place in March meeting if economic data are the desired ones, rather than next week.

The Estonian policy maker Ardo Hansson said two days ago that it is only rational to end QE after September. More specifically, Mr Hansson mentioned: “There are certainly good reasons to reduce the importance of the net purchases in our communication soon — also with a view to a potential end to these purchases. If growth and inflation continue to evolve broadly in line with the ECB’s latest projection, it would certainly be conceivable and also appropriate to end the purchases after September. The last step to zero is not a big deal anymore. You do not have to do a lot of fine-tuning. I think we can go to zero in one step without any problems.”

Sluggish inflation

But even if the situation in the EU economy is improving at a high speed, there are concerns about inflationary pressures. The latest ECB reports show that there is a decrease in inflation during this quarter whereas it will slightly increase in the next three quarters. The core rate, excluding energy as well as other volatile items such as food, is predicted to remain unchanged but relatively low.

The headline rate is now at 1.4% and the underlying rate is at 0.9%. Claus Vistesen, chief eurozone economist at Pantheon Macroeconomics in Newcastle, U.K. said: “The headline forecast has to go up, but you’re still going to have this divergence in staff forecasts between core inflation and headline. Given the most recent history of the ECB you would expect the doves to win.”

However, the ECB governing council member Francois Villeroy de Galhau said yesterday that ECB is confident that the inflation rate in the eurozone will reach its target of close to 2% even if underlying inflation has been stable at 0.9% for three months. Francois Villeroy was not sure though about the time needed to meet the inflation target but he expressed concerns about the recent exchange rate evolution which could affect the imported prices negatively.

ECB’s concerns of Brexit

The Brexit negotiations are still ongoing with President Donald Tusk to welcome a change in the minds of British people reversing the exit of Britain from the EU. However, Prime Minister Theresa May has denied providing the opportunity to voters to approve whatever withdrawal treaty is agreed with Brussels before Britain leaves the bloc in March 2019.

The governor of the Central Bank of Ireland and member of the ECB’s governing council has said that Brexit could cause serious financial turbulences to the EU. Philip Lane stated that London is too important in financing the Old Continent. More in detail, Mr Lane mentioned:  “The City of London is the wholesale headquarters of the EU. If there is a genuine shock and we have a Brexit without a transition period, then that is a financial stability risk. Brexit is a bigger headache if there is no trade deal; that is what we are looking at most closely, that and [the impact on] financial services.”

On the contrary, the president of ECB believes that Brexit will not have a serious impact in the EU but its consequences will remain within Britain.

All in all, the ECB forecasts have revealed that the monetary policy will be changed with fewer bonds purchases leading to an end for the QE programme. However, it remains to be seen when and under what economic and inflation outlook exactly, the governor of the central bank will alter the central bank’s policy.

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

the European Sting Milestones

Featured Stings

How to build a more resilient and inclusive global system

Stopping antimicrobial resistance would cost just USD 2 per person a year

Theresa May expresses her optimism about Britain’s economic success while UK business outlook seems ominous

Brussels Vs. Google: The €1 bn EU fine and the US response

How can consumers be effectively protected from insurance sellers?

Promoting Primary Health Care to the Young Health Workforce: a new approach

Globalization 4.0 means harnessing the power of the group

Asylum: deal to update EU fingerprinting database

GDPR and the World Cup have these 4 things in common

OECD economic scenarios to 2060 illustrate the long-run benefits of structural reforms

Brexit: PM May must hush Boris Johnson to unlock the negotiations

The Commission offers exit from the EU budget stalemate

The Schengen area is at a crossroads

In Gaza, UN envoy urges Israel, Palestinian factions to step back from brink of a war that ‘everybody will lose’

Stability in Europe has no chances because of Ukraine

The British “nonsense”, the relaxed Commissioner and the TTIP “chiaroscuro” at this week’s Council

UN condemns ‘cowardly’ attack on Libya’s national oil corporation headquarters

Immigrants make good entrepreneurs. This study proves it

The “Colombo Declaration” adopted at the World Conference on Youth 2014

Zeid calls for ICC probe into Myanmar Rohingya crisis

MEPs urge the EU to lead the way to net-zero emissions by 2050

MEPs back plans to halt spread of drug resistance from animals to humans

Eurozone at risk of home-made deflation and recession

Banks can fight financial crime. But we can’t do it alone

Prisons are failing. It’s time to find an alternative

Quicker freezing and confiscation of criminal assets to fight organised crime

Trade deals’ pure realism: it may take 10 years for a post-Brexit agreement

Can technology save life on Earth?

Banks cannot die but can be fined

Global Citizen-Volunteer Internships

‘Path to peace’ on Korean Peninsula only possible through diplomacy and full denuclearization: US tells Security Council

Four things Turkey did for business in the G20

‘Warp speed’ technology must be ‘force for good’ UN chief tells web leaders

FROM THE FIELD: ‘Harvested’ rainwater saves Tanzanian students from stomach ulcers, typhoid

Medical training without borders: what’s still missing?

‘Going green’ is good business says private sector at UN’s COP24 climate conference

The financial world upside-down: debt failure closer

Predatory labour taxation not an issue for the Commission

Low productivity jobs continue to drive employment growth

3 ways to ensure the internet’s future is creative, collaborative and fair

Italy can stand the US rating agencies’ meaningless degrading

Venezuela: Competing US, Russia resolutions fail to pass in Security Council

Posting of workers: final vote on equal pay and working conditions

Young people worldwide can ‘determine the future of migration,’ says UN senior official

Amazon, a pair of shoes and my Data Privacy walks away

A Sting Exclusive: “Technology for all, development for all: the role of ITU”, written by the Secretary General of the United Nations Agency

First Western Sahara talks at UN in six years, begin in Geneva

Spring 2019 Economic Forecast: Growth continues at a more moderate pace

A Sting Exclusive: “Cybersecurity Act for a cyber-bulletproof EU”, by EU Vice-President Ansip

What slums can teach us about building the cities of the future

FROM THE FIELD: Rohingya babies conceived out of ‘incomprehensible brutality’

YOUTH WILL BE A KEY FOCUS IN THE NEXT EUROPEAN PARLIAMENT

COP21 Breaking News: “We must accelerate the process”, Laurent Fabius cries out from Paris

We’re facing a ‘cold crunch,’ and it’s nothing to do with the polar vortex

A day in the life of a refugee: the role of nations and citizens of the world

Marking Sir Brian Urquhart’s 100th birthday, UN honours life-long servant of ‘we the peoples’

Torture is unacceptable and unjustified ‘at all times’ underscore top UN officials

Guatemala Dos Erres massacre conviction welcomed by UN human rights office

World Bank President steps down, Chief Executive assumes temporary role

This is how AI in video games will change the future of work

Eurozone: A crucial January ahead again with existential questions

Women’s empowerment ‘essential to global progress’ says Guterres, marking International Day

More Stings?

Speak your Mind Here

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s