The end of the purchase of bonds does not imply a reduction of the stimulus (C)

(Bloomberg) – The chief economist of the European Central Bank, Peter Praet, said that the end of the institution's bond purchase program this year did not mean not that the policy was adjusting, while pointing out that the winds are "more and more perceptible" for the economy.

The message comes as the Governing Council prepares for its meeting on December 13, when it will issue new economic forecasts and decide whether the end of almost four years of government bond purchases and companies. Praet pointed out that the reinvestment of badets owed will play a key role in maintaining monetary support as inflation slowly increases.

"The end of net badet purchases is not tantamount to a withdrawal of accommodative monetary policy," Praet said in a speech in Frankfurt on Monday.

The economist acknowledged the recent slowdown of the economy in the euro zone and said that "factors related to protectionism, volatility in financial markets and the vulnerability of emerging markets they create contrary winds more and more visible. "

He also said that excess liquidity – the cash surplus in the financial system – would decrease as financial institutions pay long-term loans from the ECB. However, reinvestments "will help maintain favorable liquidity conditions for an extended period of time", ensuring that interbank interest rates remain close to the ECB's deposit rate, which is currently at least 0%. , 4%.

The excess liquidity is currently $ 1.9 trillion ($ 2.2 billion). Praet projected in his presentation a slide showing that if there was no reinvestment, he would fall to about 500,000 million euros in March 2021, at the end of the last one. long-term financing operation with a specific objective (TLTRO, for its acronym in English).

The economists of JPMorgan and Barclays, among others, expect the ECB to propose new TLTROs in the coming months. Barclays said Monday in a note that risks such as business disruption, stagnant Italian budget and slowing growth in China are making the launch of a third batch of these loans an effective way to avoid an adjustment.

Original note: ECB text says end of QE is not a reduction of stimulus (correct)

(number corrected for 6th paragraph)

– With the collaboration of Piotr Skolimowski.

Rapporteurs in the original note: Alessandro Speciale in Frankfurt, [email protected], Carolynn Look in Frankfurt, [email protected]

Editors of the original story: Paul Gordon, pgordon6 @ bloomberg .net, Kevin Costelloe

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