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Bonds – ECB will probably again play for time News

Sunday, September 3rd, 2017 | Economy

Most experts do not expect the Council of the European Central Bank to make a decision on the future of controversial bond purchases. "Above all, the strong euro speaks against a hasty procedure," says NordLB's foreign exchange analyst Jens Kramer.
The Community currency has climbed by around 13 per cent since the beginning of the year and lastly stood at 1.2069 dollars the highest level for two and a half years. According to insiders, this is an increasing number of central bankers' concerns. In particular, Council members from the economically weaker eurozone countries feared that this could slow down economic growth. Products of European companies are becoming more expensive and therefore more unattractive as a result of the high-altitude flights on the world market.
"For a wait-and-see attitude, it is also clear that, with a view to the Bundestag election, the central bank does not want to be exposed to the allegation of political influence," says Zinrepertete Christian Reicherter from the DZ Bank. A decision on the future of the debt-heavy debt program should therefore be expected at the ECB's meeting on 26 October.
According to ECB President Mario Draghi is to be advised in the autumn on the securities purchases. These are currently the most important instrument with which the central bank wants to ensure more inflation. The transactions are designed to encourage banks to invest more loans instead of investing in these stocks. This then supports the economy. Currently, the euro-watchdog monthly purchase government bonds and other securities with a volume of 60 billion euros. It is unclear how 2018 will go on.
Fingze expected
Time is pressing. Commerzbank economist Michael Schubert therefore considers it unlikely that the bank will move at all on Thursday. It is conceivable that the ECB would supplement its monetary policy outlook and declare to continue the purchases of securities at the present or a lower level. "With such a wording, the ECB would give the direction of the decision, but at the same time keep many options open."
The Bank of America expects Draghi to at least announce that ECB committees have been commissioned to develop proposals on how to proceed with purchases in 2018.
Although the economy in the eurozone is again performing much better, most recently with a growth of 0.6 per cent in the second quarter. Nevertheless, inflation stood at 1.5 percent in August, still a good distance from the targeted brand of just under two percent. Draghi therefore does not yet see the ECB with its ultra-expansive course.
Because of the improved economy, the voices are louder within the central bank, suggesting an end to bond purchases. Bundesbank President Jens Weidmann recently asked for a quick and orderly exit. His suggestion is that the purchases are to be reduced slowly to zero from 2018 onwards. He rejects an abrupt end of the program. According to a Reuters survey, most economists are currently assuming that the ECB will completely abolish transactions by the end of 2018.
The euro watchdogs will not shake the key interest rates on the record low of 0.0 percent since March 2016.


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