The European Central Bank is expected to announce a small reduction in bond purchases at its October meeting. Cautious message.
The European Central Bank is expected to say on October 26th that it will begin to scale back its monthly asset purchases in January, from 60 billion.EuroDown to 40 billion euros.
They disagree on whether the purchase plan will last for six or nine months after that.
The October meeting is probably the biggest trade-off in the history of the ECB. The ECB will have to scale back its bond purchases to address its bond scarcity, while keeping policy loose enough to meet its inflation target, "said Peter Vanden Houte, chief eurozone analyst at ING.
"it is important to avoid letting the market misinterpret this decision as an excessive hawk, making it a tricky action to reduce stimulus. "
A Reuters poll of more than 100 analysts on Oct. 11-17 showed that most analysts raised their growth outlook compared with previous surveys. But economic growth in the eurozone is expected to slow next year, while inflation forecasts remain unchanged or lowered at best.
All 45 analysts who answered additional questions in the latest survey said the ECB was expected to announce cuts in asset purchases at its October meeting.
Analysts expect a wide range of reductions in monthly purchases starting in January, ranging from 5 billion euros to 40 billion euros, with a median forecast of 20 billion euros.
* * for how long? **
Analysts are divided on how long the ECB will extend its asset purchases after it expires in December. Analysts have no clear views on whether the central bank will not set a fixed time limit.
Of the 32 analysts who expected the plan to be extended to a specific time, 14 said it would be extended until the end of June. Another 13 analysts believe it will be extended by nine months to the end of September.
Only five analysts said they expected to extend it until the end of December.
Respondents to the latest survey also said that the ECB was most likely to end its quantitative easing programme completely by the end of next year.
While this is in line with other major central banks trying to exit ultra-loose monetary policy, the ECB is expected to hint at keeping policy loose by keeping interest rates at record lows for longer.
In fact, most of the analysts surveyed in the survey do not expect the ECB to raise its benchmark interest rate from its record low until 2019, while only a few expect it to be next year at the earliest.