'A Potential Sea Change Event': ECB To Halve €60bn Bond Buying Programme

Bond purchases will continue at €30bn a month for nine months until September 2018 but the ECB said if the outlook became "less favourable" the Governing Council could increase the asset purchasing programme once again.

The ECB said in a statement: "From January 2018 the net asset purchases are intended to continue at a monthly pace of €30bn until the end of September 2018, or beyond, if necessary, and in any case until the Governing Council sees a sustained adjustment in the path of inflation consistent with its inflation aim."

ECB President Mario Draghi added: "The recalibration in our asset purchases reflects growing confidence in the gradual convergence of inflation rates towards our inflation aim on account of the increasingly robust and broad based economic expansion.

"We did not discuss composition and how the asset purchase programme will evolve however, we will continue to buy sizeable quantities of corporate bonds."

Asset purchases will continue until the end of the year at the current €60bn-a-month rate, which has been in place since the ECB reduced its purchases from €80bn to €60bn in April.

As expected, the ECB maintained interest rates at 0%, which it said would remain at this level "well past the horizon" of the QE programme.

On the news, the euro fell 0.42% against the US dollar to $1.176 while against sterling it has fallen 0.06% to £0.89, as analysts responded to a more dovish tone from the ECB than expected.

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Jordan Hiscott, chief trader at ayondo markets, commented: "Today is a potential ‘sea change' event for the ECB. For the first time in its recent history, and certainly in Marco Draghi's tenure, we could see the partial halting of stimulus in the form of bond buying.

"With growth in Europe now back on track, and with other major central banks looking to raise interest rates, the timing seems perfect.

"However, the ongoing issue of low inflation in the eurozone will likely mean monetary stimulus is reduced, but the program has been extended to encompass this issue."

Charlie Diebel, head of rates at Aviva Investors, said: "While this is half of the current pace, it represents another €270bn of purchases, or liquidity, injected into European fixed income.

"The market has rallied in fixed income and the euro has sold off as there was a hawkish bias to expectations going into the announcement.

"The fact that the ECB will continue to reinvest proceeds for some time after QE ends, adds to the dovish read and in turn should be supportive for risk assets."

Nancy Curtin, chief investment officer at Close Brothers Asset Management, said: "Ten years on from the financial crash, the era of quantitative easing is yet to run its course in Europe.

"This slow, steady and widely predicted approach hopes to rein in the euro from rising further, which is limiting the earnings capacity of European exporters, at the same time as avoiding a European taper tantrum in the markets.

"Whether one can be achieved without the other remains to be seen."