ECB ready to signal shift in quantitative easing policy
European Central Bank (ECB) policymakers said they're open to tweaking their guidance soon in tandem with a strengthening economy, spurring a rise in the euro as traders bet bond-buying will end in September.
Abridged minutes of a December meeting of the ECB governing council said there was a "widely shared" view among officials that communication would need to evolve gradually based on the outlook for growth and inflation. It said the language on the monetary-policy stance could be revisited early this year.
That means the ECB expects to start alerting the market in advance that a change of policy is justified. Since mid-2012, the ECB has slashed interest rates and launched a vast bond-purchasing policy in order to stimulate the economy.
The latest noises indicate that era is drawing to an end, sooner rather than later.
The euro jumped a cent, and was trading at $1.2039 at 3:20 pm in Frankfurt. The yields on German bonds also increased, with the two-year yield gaining 4 basis points to minus 0.57pc.
"The big picture is that any shift in communication, whether it happens in March or June or if it's gradual or hawkish, now seems to be backed by the majority of the Governing Council, which didn't seem to be the case in October," said Frederik Ducrozet, an economist at Banque Pictet & Cie in Geneva, adding that QE may end even if underlying price pressures only improve slightly.
"This could have some very concrete policy implications."
The change of ECB policy has been widely anticipated, but investors are currently on edge after reminders that central banks around the world have the potential to roil financial markets in 2018.
A minor tweak in the Bank of Japan's bond-purchase operation on Tuesday saw the yen strengthen more than 1pc in two days, and a change in the way China's central bank manages the yuan sparked losses in that currency.
Though inflation remains weaker than the ECB would like, the broader economy is booming, with the central bank estimating the fastest expansion in 10 years in 2017. Surveys of confidence have surged and measures of activity are at multi-year highs.
The Governing Council said recent numbers show a "solid, broad-based and increasingly self-sustaining economic expansion."
According to the ECB report, policymakers agreed that while economic data had been more positive than expected, underlying inflation "had yet to show convincing signs of a sustained upward trend." (Additional reporting Bloomberg)