ECB Tapers and the Doves Fly!

By SNW Asset Management via

The doves fly again! Last week the European Central Bank (ECB) reported it will taper the amount of bonds it buys from 60 billion euros monthly to 30 billion euros, starting in January of 2018. Although this is a material reduction in monetary accommodation (30 billion is real money), the markets viewed the announcement as dovish, with the euro falling and European stock markets rallying.

So how is this dovish? 

Mario Draghi made it clear that while the 30 billion euro target will run until September of 2018, the program will not end quickly and can be extended and even increased if there is a need.  The ECB also made it clear that interest rates will remain “at the present levels for an extended period of time, and well past the horizon of net asset purchases.” As we have mentioned before, the ECB rates are below low. In fact, the ECB charges banks 40 basis points yearly to deposit money. This negative deposit rate is a real incentive to lend and to stimulate the economy, so goes the ECB’s argument.

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