ECB To Phase Out QE With €10Bn In Monthly Purchases By End Of 2018: Report

While Mario Draghi succeeded in slamming the Euro today by telegraphing his renewed displeasure at the escalating trade wars between the US and Europe while modestly reducing the central bank's inflation forecast, the unmentioned elephant in the room remained front and center: the ECB is rapidly running out of eligible (German) bonds to monetize.

But while Draghi removed the easing bias language in the ECB's statement - hardly a surprise that the central bank won't be buying more bonds in the coming months - there was no discussion of either the timing, sequencing or specifics of the ongoing taper. Instead the ECB appears to have picked Bloomberg as its "trial balloon" conduit du jour, and in a report published moments ago, Bloomberg writes that according to leaked ECB "internal staff calculations on the future path of monetary policy", the central bank projects that asset purchases will total €30bn in Q4, 2018 "according to euro-area officials familiar with the matter."

This means that the ECB would be monetizing only €10 billion per month in October through December, at which point QE will supposedly end, or as Bloomberg puts it:

A 30 billion-euro extension in the final three months of the year would allow for a short taper. The current pace of purchases is about 90 billion euros a quarter, or 30 billion euros a month.

The reason for the mini taper, is that "policy makers have long been in agreement that QE shouldn’t stop abruptly -- a view ECB President Mario Draghi has publicly voiced in the past."

To be sure, while Bloomberg is quick to hedge that "the assumptions are technical and don’t constitute a pre-commitment on bond buying past September, when the current program is scheduled to end" which is obvious since Draghi wouldn't even touch on this topic, "there’s broad agreement among Governing Council members that quantitative easing should probably come to a halt by the end of 2018" according to Bloomberg's sources.

The ECB has so far tapered its QE on two occasions: once in December 2016, when it trimmed monthly purchases from €80 to €60BN, and again last October, when Draghi announced that future monthly purchases would be chopped further in half, to just €30BN per month. Meanwhile, the media was abuzz with speculation of a "short taper" which today's Bloomberg report has once again confirmed (and since it has been the same Bloomberg authors, Jana Randow and Alessandro Speciale, it is clear that it is the same (German) source leaking the "short taper" details month after month."

The article also notes that ECB members have taken note of market expectations for the ECB future rate moves at this meeting, deeming them quite stable since the last January meeting and having no concerns regarding them. As Bloomberg reminds us, the market has a full hike priced in for Q2 2018.

In other words, come January 1, 2019, it will be all up to Kuroda and the BOJ to continue injecting liquidity, a task which is becoming increasingly problematic for the BOJ as well, as the central bank now owns roughly half of all Japanese government debt, and its growing ownership is becoming a structural concern for the stability of the Japanese bond market.


itstippy Thu, 03/08/2018 - 14:26 Permalink

Why are they still printing?!?  I thought we were well into a robust global economic expansion?

This is the longest "recovery" ever.  It reminds me of the Green Bay Packers' "rebuilding" years of the 1970s-1980s.  Just fucking pathetic.  My old man was optimistic for a turn-around for over 20 years.  I always gave him a subscription to The Packer Report for his birthday and every month he read that thing cover to cover.  The Packers were always on the way to future glory.  One year they even changed the uniforms hoping that would spur the team to excellence (it didn't work).

Oh well; I guess the Japanese have been at it even longer.  

Batman11 Thu, 03/08/2018 - 14:31 Permalink

Using the broad brush of monetary policy on the divergent economies of the Euro-zone.

This is going to be hard.

The Northern nations have a permanently under-valued currency making them more competitive.  

The Southern nations have a permanently over-valued currency making them less competitive.  

It got off to the worst possible start as Germany went crazy over the boom and their Neuer Markt (German NASDAQ) crashed by 97% in the bust.

The German’s have a lot of influence and monetary policy is often geared for Germany rather than everyone else, although its economy sits at the strongest end of the spectrum. The German economy suffered from the crash and the ECB eased monetary policy to help Germany.

The periphery have traditionally had very high interest rates, but the ECB had now encouraged them to go out and spend like they’d never done before. They responded as expected to the ECB’s easy monetary policy and brought their spending forwards.

Germany didn’t respond that well and didn’t borrow very much as they were still licking their wounds from the crash of their Neuer Markt.

ECB monetary policy had exacerbated the divergence of the Euro-zone nations. By the time the effects of 2008 hit, Germany had recovered and the periphery had borrowed up to the hilt.

When the crisis hit, the South started deleveraging and paying down their debts. The ECB imposed austerity made things worse.

The money supply ≈ public debt + private debt

The “private debt” component was going down with deleveraging from a debt fuelled boom. They really needed to increase Government spending and borrowing to maintain the money supply to ease deflationary pressures.

As Mario says the Euro-zone has recovered as a whole, but the picture is very different in the North compared to the South.  

Richard Koo has the data and can see no end to the problems in the South where they are still in a balance sheet recession.

Using the broad brush of monetary policy on the divergent economies of the Euro-zone.

This is going to be hard, perhaps impossible.

Batman11 Batman11 Thu, 03/08/2018 - 14:32 Permalink

Richard Koo predicted in 2008 ......

“forcing a country or region in a balance sheet recession to balance the budget out of misguided pride or stubbornness will not benefit anyone. Indeed, forcing an inappropriate policy on a nation already suffering from a debilitating recession can actually put its democratic structures at risk by aggravating the downturn”

Renzi does just that and the populists are in.

In reply to by Batman11

Easyp Thu, 03/08/2018 - 14:53 Permalink

Well given the EU has socialised most bad private debt into public debt I suppose they can afford to quit soon.  It will be funny listening to EU taxpayers once they figure out what has really gone on under the Merkel regime.

Peter K Thu, 03/08/2018 - 14:57 Permalink

Is it me, or was it odd that only one question about Italian election was asked at today's ECB presser?


You would think someone would ask Draghi about... oh... supporting the Italian bond market since the ECB is literally the only buyers?


It was the most bizarre ECB that I have ever seen.

Jack Oliver Thu, 03/08/2018 - 18:25 Permalink

They can never give up QE - They are in too FUCKING deep ! 

Since the FED cant be audited - It’s anybody’s guess how much they have printed and ‘lent’ to buy their FUCKING ‘allies’ !!