The European Central Bank (ECB) announced the end to its quantitive easing programme on Thursday, sending the Euro lower.
In a widely expected decision, the bank is set to halt its €2.6 trillion bond-buying programme towards the end of this month.
However, the central bank will continue to reinvest money from maturing bonds, remaining active in the bond market.
The council said the investments would continue: “for an extended period of time past the date when it starts raising the key ECB interest rates, and in any case for as long as necessary to maintain favourable liquidity conditions and an ample degree of monetary accommodation”.
Nevertheless, investors still remain concerned that the eurozone economy has more to go in terms of recovery.
Christian Jaccarini, senior economist at Centre for Economics and Business Research said:
“With Eurozone stability remaining under threat from the slowing growth and heightened political unrest, the ECB’s Governing Council was keen to remain supportive as it announced the end of quantitative easing today.
The move to end QE was almost inevitable given the ECB’s credibility was at stake. Still, while clear statements on the prolonged use of reinvestments and low interest rates will provide some reassurances for investors, the backdrop for the announcements will remain concerning for many.”
During a speech in Frankfurt on Thursday, ECB President Mario Draghi acknowledged continued concerns about the strength of the Euro economy.
Nevertheless, he pointed to domestic economies as key to leading economic expansion.
Moreover, Draghi said eurozone growth was expected to be 1.9%, rather than the 2% initially forecast back in September.
“The risks surrounding the euro area growth outlook can still be assessed as broadly balanced. However, the balance of risk is moving to the downside owing to the persistence of uncertainties related to geopolitical factors, the threat of protectionism, vulnerabilities in emerging markets and financial market volatility,” Draghi told reporters.
GDP for 2019 also revised downwards to 1.7 %, as opposed to to an earlier forecast of 1.8%.
Regarding inflation, Draghi said he expects headline euro inflation figures to fall in the coming months.
He said:
“Measures of underlying inflation remain generally muted, but domestic cost pressures are continuing to strengthen and broaden amid high levels of capacity utilization and tightening labor markets, which is pushing up wage growth.”
Draghi also said that the ECB still intend to raise rates in the summer of next year.
