Massive €5.1 trillion lake of free & easy money to remain in Eurozone.
The European Central bank has ceased bond buying under its quantitative easing (QE) program.
This is after having purchased an eye-watering €5.1 trillion over 5 QE programs, the first of which started in March 2015.
Although the ECB will not pour more water into its monetary Loch Ness, it will not drain it either, for fear of what may lie beneath.
Here are the salient points.
First: the interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility will remain unchanged at 0.00%, 0.25% and -0.40% respectively, and are expected to remain at those levels at least through the summer of 2019.
Translation? Free money for longer.
Second: the Governing Council intends to continue reinvesting, in full, the principal payments from maturing securities purchased for an extended period of time past the date when it starts raising the key ECB interest rates, and in any case for as long as necessary to maintain favourable liquidity conditions and an ample degree of monetary accommodation.
Translation? Reinvestment means no balance sheet run-off yet, and no change to quantity of free money.
In aggregate - a massive lake of free and easy money will be maintained for as long as necessary.
On the one hand, this move signals further eggshell treading around an expected Eurozone recession and an uncertain Brexit, with European, German and UK equity indices slightly down in Thursday morning trade.
On the other hand, a weakening Euro may favour German and French exporters, assuming a continued thawing in the US-Sino trade war.
There is still no sign of the Euro-hawk - and given his term is drawing to a close this will likely cement Mario Draghi’s place in ECB history as the dove for all seasons.
Mike.
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