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No sign of ECB ending massive easing programme: minutes

Memebers view 'financing conditions had to remain supportive to underpin the recovery in growth and inflation'.

Frankfurt: The European Central Bank is ready to extend its "quantitative easing" programme if necessary, minutes from a September governing council meeting showed Thursday, countering speculation it would soon cut down on bond-buying.

Governing council members shared the view that "financing conditions had to remain supportive to underpin the recovery in growth and inflation", the minutes read.

"It was therefore of crucial importance to preserve the very substantial degree of monetary support," they said.

The dovish language from the August meeting contrasted with a media report this week that policymakers were considering "tapering" — or gradually reducing to zero — the ECB's 80 billion euros per month government and corporate bond purchasing-programme, set to expire in March 2017.

Given the continuing, if sluggish, recovery of the eurozone and the possibility of running up against limits in the number of bonds eligible for the ECB to buy, observers have suspected that an end to QE could be on the horizon.

The ECB limits its purchases of any one country's bonds under rules banning "monetary financing" of government spending with printed money.

It also buys no bonds with yields lower than the deposit rate of interest banks pay to park cash with it overnight — currently -0.4 percent.

The ECB therefore has a choice between winding down its bond-buying programme or loosening its rules and giving itself access to a bigger pool.

But without the QE programme — backed by historically low interest rates and a programme of cheap loans to banks designed to boost lending to businesses and households — growth could weaken, hindering inflation from reaching the ECB's mandated target of close to but just below 2.0 percent.

The policymakers said there should be "no doubt" about the bank's determination "to adopt further measures, if needed, to fulfil its price stability objective," the minutes read.

Against the background of continuing weak inflation and the ECB's saying that it would explore extending QE, "we still expect the ECB to announce a six-month extension" at its December policy meeting, Jennifer McKeown of Capital Economics said.

"With the economy likely to perform worse than the bank expects, we would not be surprised if it had to increase the pace again next year," she went on.

( Source : AFP )
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