Business

ECB's asset tapering move hints at stimulus exit plan

Kyodo

The European Central Bank decided Thursday to extend its asset purchase program by nine months to the end of 2017 to boost tepid price growth, but pledged to reduce the monthly pace of buying from April.

The ECB said it will continue asset purchases at the current pace of €80 billion ($86 billion) a month until the end of March as planned, but will reduce spending to €60 billion per month from next April.

The ECB’s decision to taper its quantitative easing program suggests the bank has started to turn its attention to finding an “exit strategy” from its unconventional monetary policy.

At its policy meeting Thursday, the central bank decided to leave its deposit rate unchanged at minus 0.4 percent.

Since the U.S. Federal Reserve is widely expected to increase interest rates later this month, the interest rate gap between the United States and other major economies such as Europe and Japan is likely to widen further.

Inflation has been sluggish in the eurozone. Consumer prices in the area rose only 0.6 percent from a year earlier in November, far from the ECB’s 2 percent inflation target.

The outlook for the eurozone economy is uncertain as the political situation in Italy has become unstable after Matteo Renzi resigned as prime minister following a referendum loss earlier this month.

Major elections are also scheduled in France and Germany next year, raising concerns that political risks might grow in Europe, which could rattle financial markets and in turn weigh on the regional economy.