The European Central Bank (ECB) on December 31 will formally end its multi-trillion Euro quantitative easing (QE) program that rescued the eurozone economy from deflationary dangers and rebuilt confidence in its financial institutions.
It said it will stop expanding the crisis-era stimulus (or asset purchasing program), and will instead switch to reinvesting cash from maturing bonds to purchase additional debt. These purchases should keep borrowing costs on the low-end until 2021.
The open-ended timeline should allow ECB policymakers to push back the date at a relatively low cost to credibility if the economy falters.
The Governing Council of the ECB confirmed that bond purchases will fall from €15 billion a month to zero by the end of the year. It also left benchmark interest rates unchanged.
Introduced in March 2015, ECB's QE program saw the bank buy more than €2.6 trillion ($2.9 trillion) in a successful bid to prevent the bloc's banking system from unraveling into the European equivalent of the American Great Recession of 2008.
The QE measures are widely credited with helping revive the 19-member currency bloc after a double-dip recession and the holdover effects of the European debt crisis. The end of QE marks a historic moment for the ECB, with ECB President Mario Draghi reluctantly dismantling one of his most divisive monetary policies.
With the most prominent crisis-fighting measure of the ECB now almost back in the toolbox, the big question is, what will be next, asked Carsten Brzeski, the chief economist at ING
The timing of the ECB's move, however, remains subject to debate. Political developments in the United Kingdom over Brexit; Italy over excessive government spending and France over street violence is placing the renewed strain on financial institutions that will have to cope with these developments.
The ECB meeting comes a week ahead of the U.S. Federal Reserve's December meeting where it is expected to raise interest rates one-quarter point, its last for the year. Slowing growth in the U.S. and worldwide, due partly to Trump's trade war, has some economists expecting the Fed to forego the next quarter-point rate hike in March.
The Fed has announced three hikes for 2019. On the other hand, Fed watchers believe the central bank might reduce its forecast based on recent conciliatory comments from Fed officials and the decelerating U.S. economy.
The U.S. economy is showing clear signs of slowing down while its three equities markets have been wracked by extreme volatility linked to Trump's trade war for the past two months.
