ECB announces end of QE, interest rates to be unchanged at least through mid-2019

The European Central Bank has decided to end its asset purchase programme at the end of 2018, although interest rates will remain at their current levels - at least - "through" the summer of 2019.

Their decision to wind-up the APP had been widely anticipated, following a recent speech by its chief economist, although there may have been some residual speculation that they would shy away from announcing the shift at Thursday's meeting, given the recent spate of weak data out of the euro area.

Specific guidance on the possible timing of the first interest rate move on the other hand was not, although the Governing Council's intention might have been exactly the opposite - to anchor market expectations.

Indeed, in an initial reaction, as of 1325 BST euro/dollar was trading lower by 0.46% to 1.17373.

ECB chief Mario Draghi would likely be queried on the matter at his press conference (he later clarified that no hike was likely until September 2019), which was scheduled to begin at 1330 BST.

In a statement, the ECB's Governing Council said the APP would continue at its current pace of €30bn until the end of September 2018, before being ratcheted down to €15bn until the end of the year - subject to incoming data - when it would be completely phased out.

As anticipated, the interest rates on the ECB's main refinancing operations, marginal lending facility and the deposit facility were unchanged at 0.00%, 0.25% and -0.40%, respectively, the monetary authority said.

Similarly, the policy of reinvesting the principal amount from maturing securities was unchanged, with the ECB saying it would remain so "for an extended period of time after the end of the net asset purchases, and in any case for as long as necessary to maintain favourable liquidity conditions and an ample degree of monetary accommodation."

Unexpectedly however, it added that: "the Governing Council expects the key ECB interest rates to remain at their present levels at least through the summer of 2019 and in any case for as long as necessary to ensure that the evolution of inflation remains aligned with the current expectations of a sustained adjustment path."

Commenting on the ECB's announcement, Marchel Alexandrovich, senior European economist at Jefferies, said: "So the ECB is sending a signal that rates are to remain on hold for 6-9 months after QE finishes. Draghi’s last Press Conference and Q&A is on 24 October 2019 (he leaves the ECB at the end of October 2019) – so the focus will now be on whether he can raise rates before he departs."

Yet Pantheon Macroeconomics's chief Eurozone economist, Claus Vistesen, had already made up his mind, telling clients: "We are inclined to see this as a dovish signal. Mr. Draghi is putting markets on notice; 'don’t go overboard and start pricing in rate hikes immediately after QE is ending.'

"It is also a signal that markets should not expect further changes in the guidance on rates until Q2 next year, later than currently expected by markets. We will be very interested to hear how Mr. Draghi qualifies this in the press statement. It looks like a signal that the president will be leaving the ECB without implementing a rate hike at all, though, our base case remains that the central bank will increase the deposit rate, at least once, in the latter part of the year."