October ECB meeting outlook: Will QE be extended?


October ECB meeting is taking place tomorrow, as investors globally are concerned about the outcome of the meeting: What will the bank decide about its policy mix?

19 October, AtoZForex Mario Draghi, the President of the European Central Bank (ECB), is currently facing a challenge of reassuring investors that he can increase the ECB’s €1.7 trillion stimulus one more time without exposing the actual plans.

October ECB meeting: Will the QE be prolonged?

The ECB is expected to keep its policy mix unchanged for a fifth consecutive meeting this week. In addition, in case the bank will leave its policy the same; it would signal that the €80 billion purchasing program would be continued.

The traders are increasingly excited about the result of the ECB meeting tomorrow, as the many investors worry that the ECB is running out of tools to boost the growth and inflation in the EU. The ECB authorities have signaled that they are highly cautious regarding the disadvantages of the massive stimulus program. An economist with the Bank of America Merrill Lynch, Gilles Moec, has stated:

“The ECB is clearly facing ‘stimulus fatigue.”

He also believes that the central bank is “frustrated by the lack of support” from other officials, such as governments, and “probably more worried than it lets on about the long-term consequences of ultralow interest rates.”

Earlier this month, the financial markets were hit by a report about the possible ECB is slowing down its quantitative easing (QE) program soon.

Will the growth slow further?

The central bank of Europe has been on wait since the time it announced a set of means targeted at boosting the economy in the region. These measures included: interest rate cuts, extra bond purchases, and cheap loans for banks.

In spite of these measures, the EU economic growth has remained sluggish, where the inflation is still fluctuating around zero, which is far below the desired ECB target of 2 percent.

There is also a possibility that the EU economic could slow down further, according to the market analysts, as the higher inflation rates would weigh on real incomes. In addition, a number of significant European votes create turmoil for investors, as it is stated by an economist with Capital Economics in London, Jonathan Loynes.

A number of economists anticipate the central bank of Europe to prolong its QE by at least half a year, which is going to account for at least a half of trillion euros of additional bond purchases.

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