After the European Central Bank (ECB) announced its decision to cut its monthly asset purchases (APP) in half, starting in January, and extend them for another 9 months from the initial deadline at the end of this year, the president of the monetary authority, Mario Draghi, gave an upbeat vision of the euro zone economy but insisted that further quantitative easing was needed in order to reach the ECB inflation target. In the announcement released 45 minutes ahead of Draghi’s appearance, the ECB said that it will begin to reduce monthly purchases in January from the current €60 billion ($70.6 billion) to €30 billion ($35.3 billion) and will extend those purchases to “the end of September 2018, or beyond, if necessary”. It added that it will “reinvest the principal payments from maturing securities purchased under the APP for an extended period of time after the end of its net asset purchases, and in any case for as long as necessary.”
Furthermore and as expected, the ECB left its benchmark interest rate unchanged at a record-low 0.0%. The central bank also held its deposit facility rate steady at -0.4% and its marginal lending rate remained at 0.25% as expected. Draghi reiterated that the ECB expects rates “to remain at their present levels for an extended period of time, and well past the horizon of our net asset purchases.”Draghi further noted that, “if the outlook becomes less favorable, or if financial conditions become inconsistent with further progress towards a sustained adjustment in the path of inflation, we stand ready to increase the APP in terms of size and/or duration.” The ECB chief also explained that the central bank’s reinvestments would continue even after the end of its net asset purchases “for as long as necessary”.
