The ECB might be moving away from its crisis-era support but it’s still ‘excessively’ accommodative, strategist says

FAN Editor

The European Central Bank (ECB) may have taken another step away from its ultra-accommodative policy on Thursday, but the central bank will still move at a very slow pace before ending its stimulus program, a market strategist told CNBC Friday.

President Mario Draghi pleased the more hawkish members of the ECB at a meeting Thursday, announcing that the bank had dropped the so-called easing bias — the intention to increase the level of its bond buying in size and duration if the economic backdrop changes. This program was brought in following the euro zone debt crisis of 2011 to boost lending and stoke inflation.

Investors interpreted the move Thursday as a sign that the bank is more positive about the euro zone economy and is slowly preparing to end years of monetary stimulus.

However, Derek Halpenny, European head of global markets research at Japanese financial group MUFG, said that the stimulus will not end overnight. “(The ECB) looks excessively on the loose side and they do seem to go at an ultra-slow pace of removing policy,” he said.

According to Halpenny, even if the ECB concludes its quantitative easing program in September of this year, as scheduled, interest rates will remain very low for at least six months after that.
The ECB reiterated Thursday that its key interest rates will remain at their present levels “for an extended period of time, and well past the horizon of the net asset purchases.” Many analysts therefore believe that the ECB in unlikely to raise rates before March of 2019. Low interest rates were used alongside the bond buying to further promote lending in Europe’s economy after the debt crises.

Wolfgang Kiener, senior analyst at BayernLB, told CNBC via email earlier this week that the ECB could even extend its quantitative easing program for three months after September, until the end of the year. He also believes that the first rate hike should only come “at the middle of next year.”

However, there are different views in the market, as investors wait for further guidance from the central bank. Halpenny told CNBC that there could be a “more rapid switch” later this year in terms of how the bank deals with interest rates.

“The ‘well past forward guidance’ (the current indication from the ECB that it will keep its rates low past its quantitative easing program) in terms of rates could be dropped more quickly than the markets are currently priced for and if we get an end to QE in September, which I think is now quite likely, that first rate hike could come a lot sooner than maybe the markets are thinking,” he said.

The ECB’s three main rates are: the interest rate on the main refinancing operations (MRO), the rate on the deposit facility and the rate on the marginal lending facility. They are currently at 0, -0.4 and 0.25 percent.

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