The ECB hopes not to reopen anytime soon, the debate on its policy

by Balazs Koranyi

FRANKFURT (Reuters) – The european central Bank (ECB) reaffirm the orientation of its monetary policy at its December meeting and its leaders are hoping to not reopen the debate on the next steps before the year 2018 is well underway, said the five sources to the fact of their discussions to Reuters.

After having spent 2.200 billion euros of asset purchases from march 2015, the ECB announced last month that it would reduce by half the monthly amount of its purchases to bring it down to 30 billion euros, while the extending of nine months, ending in September 2018, in response to the persistent weakness of inflation.

The central bank also confirmed that its rates would remain at their low current levels well after the end of its asset-purchase program, which repels their first recovery to 2019.

The sources welcomed the positive response by investors to these ads, which are perceived by the markets as an extension of the ultra-accommodative monetary policy rather than as a first step towards a normalisation of monetary policy.

“The first rate hike is now expected by the end of 2019 according to the expectations of the market and this suits me perfectly”, said one of the sources. “The markets are very well made the decision in October.”

Although the president of the ECB, Mario Draghi, has said that some decisions may be made on the occasion of the December meeting, the sources expect a meeting very quiet.

“We’re going to take a step back and reaffirm that our decision of October was good,” said a second source. “We will have new projections on growth and inflation-ED) and they might be a little evident, which is also a good thing. And we will have a discussion on the composition of asset purchases to come). And it will be almost everything.”

HIBERNATION

The debate on the composition of the purchases will focus on the share of public sector securities, mainly government bonds, and the private sector. If the responsible monetary should come to an agreement on the broad principles, the ECB will have a fairly wide margin of manoeuvre on the exact breakdown of the purchases, said several sources.

The ECB did not wish to comment.

Although it has left the door open to a possible extension of its asset-purchase program, the sources said that there was a consensus to consider that it would be interrupted by the end of 2018 if the economy and inflation in the euro area, evolve as currently expected.

“However, this is not a commitment. If there are shocks, we will react”, said a third source. “We do not take commitment in advance, so our options are open.”

Before deciding the stop of asset purchases, the ECB will try to prepare the markets by changing his speech and perhaps his driving expectations (“forward guidance”), which indicate for the moment that these purchases are always likely to be increased or extended.

According to the sources, any discussion on this point will not happen until many months, the ECB preferring to go into hibernation as long as the economic situation evolves in line with its forecasts.

“We have been discussing, of course, always in monetary policy, but I do not expect a substantial discussion before march, or even the middle of the year,” said a fourth source. “It is now planned that we were going to until the end of September and we will take the next decision, at a date relatively close to (this due).”

No decision has been taken regarding the next meetings, and no formal discussion took place regarding the next initiatives of the ECB, stressed the sources.

(Marc Joanny for French service, edited by Marc Angrand)