ECB Said to See No Rush for September Move With QE on Track

  • Governing Council sees Brexit fallout contained for now
  • Policy makers see no immediate shortage of QE assets to buy

European Central Bank policy makers currently see no urgent need to adjust or expand their bond-buying program in September, according to euro-area officials familiar with the matter.

The Governing Council, which met in Frankfurt on Thursday, views its 1.7 trillion-euro ($1.9 trillion) quantitative-easing plan as effective even after the U.K.’s vote to leave the European Union, and at no immediate risk of running into a shortage of assets, the people said. 

While potential changes to QE will probably be discussed at the next gathering on Sept. 8, there is no reason to expect substantial alterations unless the outlook worsens, the people said. The officials asked not to be identified as the Governing Council’s discussions are private. An ECB spokesman declined to comment.

The apparently sanguine mood among policy makers contrasts with the expectations of economists and investors before Thursday’s meeting. A Bloomberg survey showed that most respondents predicted fresh monetary stimulus will be added in September, probably through an extension of QE, exacerbating concerns over shrinking bond-market liquidity.

The euro initially strengthened 0.1 percent on the news, before retreating to trade at $1.1022 at 3:19 p.m. in Frankfurt.

After the Governing Council kept interest rates and the pace of QE unchanged, President Mario Draghi told reporters that officials still had a “readiness, willingness, ability” to act if needed after studying more data on the impact of Brexit. Even so, in a sign that policy makers were fairly relaxed, he noted that the council didn’t discuss specific instruments.

For a QuickTake explainer on the ECB’s quantitative easing, click here.

In an interview with Austria’s APA published Friday, Governing Council member Ewald Nowotny said a “row of uncertainty factors” have appeared since the U.K.’s referendum vote. That could impact how the ECB decides, in the fourth quarter, to develop the QE program after the current nominal end date of March 2017, Nowotny said.

“It’s very difficult to assess,” he said. “We still have time for this decision.”

Potential bond scarcity must be addressed before the program is scheduled to expire in March, but it’s not yet certain that the QE guidelines would need to be altered in September, one of the people said. Nor is it clear how they would change.

Economists have floated options including lowering or removing the requirement that bonds only be bought if they have yields at or above the deposit rate, currently minus 0.4 percent; raising the share of debt issues that can be purchased; and shifting away from the requirements that debt be bought roughly in line with the economic size of each member state.

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