Euro drops as ECB lowers growth forecast and confirms end to €2.6tn stimulus despite growth concerns

The European Central Bank has confirmed plans to bring its €2.6tn eurozone stimulus programme to an end later this month despite concerns over growth.

The bank’s bond purchasing programme, which began in 2015, will wind down at the end of the year as planned, it said today.

But the ECB said it would continue to reinvest cash from maturing bonds for “as long as necessary” once it starts raising interest rates.

The euro fell 0.25 to $1.134 as the bank revised down its growth forecasts to 1.9 per cent of GDP in 2018  and 1.7 per cent in 2019 compared with a previous estimate of 1.8 per cent.

For inflation the ECB raised slightly its 2018 forecast to 1.8 percent but cut its 2019 forecast to 1.6 percent from 1.7 percent.

President Mario Draghi said recent data had been "weaker than expected" and that the balance of risk, thought still broadly balanced, had moved to the downside in recent months.

He added that the strength of domestic demand was still underpinning euro area expansion.

Draghi said the bank's outlook was one of "continuing confidence with increasing caution" citing an "atmosphere of general uncertainty" caused by geopolitical tensions, financial market volatility, emerging market vulnerability and the threat of protectionism.

Its governing council also decided to hold interest rates at a monetary policy meeting in Frankfurt this afternoon and expected rates to remain the same “at least through the summer of 2019.”

The ECB’s deposit facility rate, its main interest rate measure will remain at -0.4 per cent.

The quantitative easing (QE) programme was launched in 2015 to aid the debt-ridden eurozone and has since lifted economic growth, wages and lending.

The ECB said: “The Governing Council intends to continue reinvesting, in full, the principal payments from maturing securities purchased under the APP for an extended period of time past the date when it starts raising the key ECB interest rates, and in any case for as long as necessary to maintain favourable liquidity conditions and an ample degree of monetary accommodation.”

The bank said it could close the QE programme as the economy was growing at a steady pace with inflation near its target of just under two per cent.

“The decision to end QE now is more about politics than economics,” Aberdeen Standard Investments senior economist Paul Diggle said.

“Winding up net asset purchases will please the hawks on the Governing Council, particularly the Germans, and if you squint hard enough the economic data can just about justify the decision,” he added.

ECB President Mario Draghi is set to explain the decisions made by the committee later this afternoon.