Thursday’s policy meeting of the European Central Bank (ECB) is the key event on this week’s economic calendar.
ECB President Mario Draghi is set to announce details of the bank’s plan to reduce its bond purchasing program. Any significant deviation from market expectations will have an impact across asset classes, particularly the Euro currency.
- The market expects the ECB to announce a reduction in bond purchases of 30 billion Euros per month.
- That will reduce monthly purchases to 30 billion Euros from the current level of 60 billion Euros, which has been in place since April.
- The reduction will start from January 2018 and is expected to run for nine months, which amounts to a forecast total purchase amount for next year of 270 billion Euros.
Markets will also be watching for whether the ECB plans to keep the bond purchasing program open-ended, or specify an end date.
Additionally, there’s likely to be some discussion around the relative scarcity of available bonds that the ECB will be able to buy.
A research note from InTouch Capital Markets said there had been considerable interest in recent statements from ECB sources, which suggested that some ECB policy makers have outlined an upper limit for bond purchases of 2.5 trillion Euros.
Total purchases are on track to reach 2.28 trillion Euros by the end of this year, which means spare capacity will only be just over 200 billion Euros — less than the forecast purchase amount for 2018 of 270 billion Euros.
Another measure to keep an eye on will be whether the ECB provides any specific guidance on the amount of maturing bonds in its portfolio that will be reinvested. Reinvesting bonds would have the effect of maintaining liquidity in the financial system.
On interest rates, the ECB is expected to confirm no changes to the current ultra-accommodative interest rate settings until the conclusion of the bond purchase program.
The Euro is holding at above $US1.18 ahead of Thursday’s announcement, having weakened from above $US1.20 since the ECB’s September meeting amid more recent strength in the US dollar.