By Tom Fairless
FRANKFURT--The European Central Bank is more likely to extend its EUR80 billion-a-month bond-purchase program next month following Donald Trump's unexpected victory in U.S. elections, analysts said.
ECB policy makers are expected to decide on the future of their EUR1.7 trillion ($1.88 trillion) quantitative-easing program at a policy meeting on Dec. 8. The program is currently scheduled to end in March.
Financial-market uncertainty resulting from Mr. Trump's victory gives ECB President Mario Draghi "another argument to do what he wants to do anyway, [which is to] prolong the full QE program by up to six months at the December meeting," said HolgerSchmieding, an economist a Berenberg Bank in London.
Benoît Coeuré, who sits on the ECB's six-member executive board, said Wednesday that the central bank would "continue to support the recovery of the euro area in an uncertain international climate."
The ECB's current policies remain "appropriate, and will continue to be appropriate until inflation is firmly back on track and heading toward 2%," Mr. Coeuré wrote, in an op-ed published on the ECB's website.
Some ECB policy makers, notably Bundesbank President Jens Weidmann, have indicated they are skeptical of extending the QE program again, citing possible risks and side effects for the eurozone's EUR10 trillion economy.
However, the landmark U.S. election result could tilt the debate toward those in favor of fresh stimulus, analysts said. The ECB has stressed it is monitoring financial-market conditions and is ready to act again, using all the tools at its disposal, ifit risks missing its inflation target.
Mr. Coeure stressed that the side effects of the ECB's policy measures "are at present limited and give us no reason to question their relevance."
While low interest rates are curbing banks' profits, the overall impact of ECB policies on banks "is, for the time being, positive," he said.
If emerging-market currencies were to weaken against the euro, then "the ECB may well ease even more [than investors expect] because of the related tightening in financial conditions," said Frederik Ducrozet, an economist at Banque Pictet & Cie SA in Geneva.
"The ECB is likely to err on the side of caution" in December by announcing a six-month extension of QE at the current pace of EUR80 billion a month, Mr. Ducrozet said.
Policy makers are also expected to decide next month on changes to the design of QE, to ensure the ECB doesn't run out of bonds to buy. Any financial-market stress could strengthen the case for "market-friendly options," such as deviating from buying bonds according to the size of each eurozone economy, Mr. Ducrozet said.
To deal with any short-term market volatility resulting from the U.S. election result, the ECB has dollar swap-lines in place with the U.S. Federal Reserve. Those are designed to improve liquidity conditions in global dollar funding markets by allowing foreign central banks to deliver dollars to domestic banks during times of market stress.
Write to Tom Fairless at firstname.lastname@example.org
(END) Dow Jones Newswires
November 09, 2016 04:01 ET (09:01 GMT)
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