ECB: No tapering in sight

The ECB is sticking with its loose monetary policy: Although the monthly bond purchases are to be reduced to EUR 60bn from April, they are set to continue until at least the end of 2017. We think that this pre-commitment to a substantial extension of the QE time horizon is unnecessary and, given the growing risks to financial stability in the eurozone, also dangerous.

The European Central Bank announced today that it will continue its bond purchasing program until at least the end of 2017. From April the monthly purchase volume is to be reduced to EUR 60bn. All told, this boosts the QE program by EUR 540bn to EUR 2.28 trillion. Should inflation remain below expectations in the coming months, the ECB has kept its options open to ramp up the monthly purchase volume as well as extend the time horizon. So there can be no question of tapering, as ECB president Mario Drahi stressed in today’s press conference. The ECB has no intention of reducing its presence on the markets. This is also illustrated by Draghi’s extremely rigid interpretation of price stability, namely that an inflation rate of 1.7% in 2019 – as the ECB expects – would not really meet the inflation target of close to 2%.

We take a critical view of the retention and extension of monetary policy measures the impact of which is dubious and which considerably distort prices and investment incentives. This further increases the threat to financial market stability. The ECB’s bond purchasing program exerts a substantial drag on the earnings and capitalization of banks in the eurozone. In addition, the central bank’s bond purchases result in an artificial reduction in risk spreads on both government and corporate bonds, while the gaps in pension provision grow ever larger.

The asymmetrical alignment of ECB monetary policy is also a concern. Should inflation developments necessitate a swifter exit than currently envisaged, we could see nasty surprises on the bond markets.


Michael Heise

Allianz SE
Phone +49.89.3800-16143

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