ECB ready to amend its QE rules to maintain stimulus

ECB ready to amend its QE rules to maintain stimulus, as the latest account suggests. Some of the EU states are not welcoming the extension of QE.

17 February, AtoZForex The European Central Bank (ECB) authorities signaled that they will ease the application of some rules on bond purchasing to support their “substantial” expansionary policy. This would provide the opportunity for more purchases of peripheral debt.

ECB ready to amend its QE rules to maintain stimulus

Spanish and Italian bonds have gained after the ECB stated that “limited and temporary deviations” from the capital key “were possible and inevitable.”

This would be needed in order to assure the quantitative easing can be executed as announced. Members of the Governing Council have “widely” shared the view at their meeting on the 18-19 January that “it was imperative to maintain a very substantial degree of monetary accommodation.”

An economist at BNP Paribas Investment Partners in London, Richard Barwell, has stated:

“Mention of capital-key flexibility is like a red rag to a periphery bond bull. You can read this as good news for Italy. Either Germany buys a lot below the deposit rate or the Eurosystem buys too much of Italy. It’s almost certainly misdirection, though.”

In the wake of ECB decision to change its QE rules, Executive Board member Benoit Coeure has highlighted that “priority should be given to purchases of assets with yields above the deposit facility rate.” The suppleness in the application of the ECB’s capital key offers “some room for a trade-off” between both guidelines.

Additionally, the yields on Spanish 10-year bonds dropped for the first time in 3 days. Italian 10-year bonds yields dipped by 6 basis points, where German two-year yields advanced 2 basis points.

ECB intends to continue bond buying 

The recent ECB account the public debate over ECB reaction in relation to the price growth and economy consolidation. Moreover, the markets are expecting the ECB to ease the QE program or to raise the interest rates.

ECB policymakers have denied speculation about the frightening QE exit. Moreover, they stressed the commitment to buy assets until the end of 2017. Otherwise, “recent encouraging developments in inflation expectations and the prospects for a sustained adjustment in inflation towards the Governing Council’s inflation aim could be put at risk.”

The central bank’s extended bond purchasing program faced resistance in some of the EU member countries. Specifically, Germany has not welcomed this initiative. ECB President Mario Draghi stated that the authorities would disregard temporary gains as long as there are no sure signs of an upward trend in underlying price pressures.

Some of the council members stated that the recent gains in energy prices have not yet triggered the impact on larger price growth.

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