The QE programme was an emergency measure applied during the financial crisis to pump money into the economy and stimulate it by keeping banks’ lending. Additionally, to the multiple interest rate decreases ECB started to create money and buying big amounts of bonds from financial institutions each month. Eurozone’s economy started to getting better thus, central bank scaled back its purchases by €20 billion a month to €60 billion in April. Since then, the expectations that policymakers will taper further its easing program in the next months sharpened as the economy picks up speed. Current, the program is intended to run until the end of December 2017, or beyond if necessary.
The Eurozone economy is expanding at a healthy rising pace the last couple of years. In the second quarter of 2012, the GDP had advanced only by 1.6%, while after an escalating improvement the second quarter of 2017 is anticipated to show a robust expansion of 2.2%, as per preliminary reading from Eurostat (the actual figure will be released today before the policy meeting and is expected to remain at 2.2%). In July’s “World Economic Outlook”, IMF revised Euro area’s growth, by 0.2% up to 1.9% for this year and 0.1% high up to 1.7% for the next year.
However, the inflation rate is still below central bank’s target. The inflation rate has been one of the biggest headache of the central bank for a long time. Since the financial crisis, they have been trying to control it by lowering main interest rates or using any other available tool they had. After a prolonged period that headline CPI was hovering around zero and Euro area has also been on deflation in May 2016, the monthly injection of money from ECB to the economy managed to pull it higher to reach ECB’s 2% target in February. But unfortunately, it was not as sustainable as wanted. The latest available figure for July was 1.3% year-over-year the same as the month before and at its lowest since last year.
Read the full article on JFD Research.