ECB left rates unchanged while QE is set to wind down in December.

Wind-down in three-year bond buying programme balanced with a hold on interest rates.

The European Central Bank has shrugged off evidence of a slowdown in the eurozone and announced that it will phase out the stimulus provided by its massive three-year bond-buying programme to the eurozone economy by the end of the year.

Despite warning that the single currency area was going through a soft patch at a time when protectionist risks were rising, the ECB said it would wind down its bond purchases over the next six months.

The ECB is currently boosting the eurozone money supply by buying €30bn of assets each month, but this will be reduced to €15bn a month after September and ended completely at the end of 2018.

The move follows strong pressure from some eurozone countries, led by Germany, that were uncomfortable about the more than €2.4tn of assets accumulated by the ECB since it launched its quantitative easing programme at the start of 2015.

Mario Draghi, the ECB’s president, said at the end of a meeting of the bank’s governing council in Latviathat the QE programme had succeeded in its aim of putting inflation on course to meet its target of being below but close to 2%.

Eurozone activity has accelerated markedly over the past three years, with some estimates suggesting that QE contributed 0.75 percentage points a year to the average 2.25% annual growth rate.

The ECB’s statement reflected the battle between hawks and doves on the bank’s council, with the decision on QE matched by a softening of its approach to interest rates.

Draghi said there would be no prospect of an increase in the ECB’s key lending rate – currently 0.0% – until next summer at the earliest.

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“We decided to keep the key ECB interest rates unchanged and we expect them to remain at their present levels at least through the summer of 2019 and in any case for as long as necessary to ensure that the evolution of inflation remains aligned with our current expectations of a sustained adjustment path,” Draghi said.

The euro lost more than a cent against the dollar after the news, with dealers contrasting the decision to leave rates unchanged in the eurozone for at least a year with signs from the Federal Reserve that it planned two further increases in US rates in 2018 and three more in 2019.

Danielle Haralambous, an analyst at the Economist Intelligence Unit, said: “Draghi acknowledged that risks from an increase in protectionism and financial market volatility had become more prominent, but maintained a relatively positive view of the outlook, brushing off signs of softer economic growth in the eurozone that prompted quite a sizeable a downward revision to the ECB’s forecast for 2018, to 2.1% from 2.4% previously.

“However, higher oil prices and rising domestic cost pressures meant that the bank’s forecasts for inflation went up to 1.7% in both 2018 and 2019, from 1.4% previously.”

Draghi said there was little risk of Italy leaving the eurozone and that tension had abated over the past fortnight.

Dean Turner, a UK economist at UBS Wealth Management, said: “Today’s meeting came at a challenging time for the ECB, considering the political turbulence in Italy and the string of soft data coming out of the eurozone in recent months. Yet it seems that the ECB has decided to look through some of the short-term concerns.

“With the ECB signalling that interest rates are unlikely to budge until the autumn of next year, investors’ immediate focus seems to be on this forward guidance for interest rates, rather than the end of QE, which is reflected in the sharp drop in the euro.”


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