The European Central Bank, at the monetary policy meeting held Thursday, extended the QE purchases by nine months to December 2017, but reduced the monthly purchases to EUR60bn from EUR80 billion. The lower pace of purchases followed, according to the ECB, as the risk of deflation has now largely disappeared.
President Draghi said the nine-month extension followed, as the ECB wants to signal a sustained presence and no near-term tapering. Draghi expressed a very dovish tone during the Q&A and continued to repeat that tapering had not been discussed.
In terms of QE restriction changes, the ECB now permits buying bonds with a yield below the deposit rate while the maturity range includes the 1-2y. The ECB has thus not lifted the 33 percent issue/issuer limit and will continue to follow the Capital Key distribution. On the repo adjustments, the ECB headlines indicate substantial easing - the details are less upbeat, Danske Bank reported.
The QE extension of EUR60bn for nine months was less than the marke t had expected, triggering a fixed income sell-off. The short-end rallied after Draghi opened the door for the possibility of 'buying below depo'.
"Looking ahead, we still believe the ECB will announce a third QE extension some time in H2 next year. This should follow as we do not believe inflation will reach a sustained path consistent with the inflation aim before December 2017," the report said.
Meanwhile, the EUR/USD traded at 1.06, down -0.05 percent, while at 5:00GMT, the FxWirePro's Hourly Euro Strength Index remained neutral at -69.67 (a reading above +75 indicates a bullish trend, while that below -75 a bearish trend). For more details, visit http://www.fxwirepro.com/currencyindex


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