Lower for longer, ECB scales back asset buys

Thu Dec 8, 2016 11:20am EST
 
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By Balazs Koranyi and Francesco Canepa

FRANKFURT (Reuters) - The European Central Bank trimmed back its asset buys in a surprise move on Thursday but promised protracted stimulus to aid a still fragile recovery, and dismissed any talk of tapering the program away.

With still no sign of a sustained rebound in underlying inflation and heightened political risk from looming elections in four of the euro zone's five biggest economies, the ECB promised to keep borrowing costs depressed longer than predicted, even reserving the right to raise back purchases if the outlook sours.

Although the cut in the volume of monthly assets buys suggests a concession to conservative countries such as Germany and the Netherlands, the underlying message was seen as dovish, catering to nations on the periphery and a boost for financial markets.

Catching financial markets off-guard, ECB President Mario Draghi said the bond buys would be cut to 60 billion euros a month from 80 billion euros starting April but they would go on until the end of 2017, three months longer than expected.

"There is no question about tapering," Draghi said. "We can even go back to 80 (billion)... there’s a range of options."

"The key message... is to show that there is no tapering in sight, to show that the ECB is going to stay in the market, to show that we will continue to exert pressure on market prices," Draghi added.

The euro weakened 1.3 percent on the ECB's move and stocks surged 1 percent .STOXX, boosted by bank shares that have rallied all week.

  Continued...

 
European Central Bank President Mario Draghi (R) and Vice President Vitor Constancio address a news conference at the ECB headquarters in Frankfurt, Germany, December 8, 2016.  REUTERS/Ralph Orlowski