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The European Central Bank (ECB) has called time on its gigantic 'quantitative easing' (QE) stimulus programme which has seen it create €2.5 trillion (£2.2 trillion) of new money in the past three years.
At a meeting in Latvia's capital Riga, the ECB's governing council announced plans to reduce the amount of bonds it buys with QE money from September through to the end of December. Monthly purchases will fall from €30 billion (£26 billion) in September to €15 billion from October through to the end of the year.
However, although the ECB believes the eurozone economy is strong enough to not need the huge injection of cash, it said no interest rate rises would be on the cards until at least 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,' the governing council explained.
Although expected the news caused the euro to fall to a four-day low against the pound. The currency fell 0.6% against sterling, with €1 worth 87.63p.
European stock markets were more positive with the FTSEurofirst 300 index adding five points or 0.3% to 1,522 and France's CAC 40 gaining 48 points to 5,501.
'This “green light” for the economy and “red light” on QE may be “lights out” for European bond prices, which have become bloated with the excess liquidity,' said Brad Holland of online investment manager Nutmeg.
'If the ECB is right in thinking the eurozone’s economy is fully on the mend, then current bond prices and yields are unsustainable. The ECB has sweetened this bitter bond market pill by saying it will not raise short term interest rates until summer 2019.'
Although bond purchases will end completely at the end of December, the governing council will continue to reinvest payments from maturing securities 'for an extended period of time' to maintain liquidity in the market.
Rachel Winter, senior investment manager at Killik & Co, noted that industrial production in Europe has slowed this year, while US tariffs on steel and possibly cars could pose another threat to European growth. In her view, this may warrant 'a continuation of loose monetary policy.'
'The ECB has clearly had to strike a balance between these issues and has opted to extend quantitative easing for a further three months at a lower level,' she said.
'An end to quantitative easing in December will pave the way for an eventual interest rate rise,' Winter added.
The ECB has decided to call time on its bond-buying programme because indicators suggest the eurozone is firmly on the path to recovery. These include signals that inflation is rising, strength in the underlying eurozone economy and higher wages.
Nevertheless, political instability in Italy sparked a market sell-off in late May - and some investors did not expect the ECB to end QE this year because of the potential threat that Italy poses to markets.
Speaking before today's announcement, M&G European Corporate Bond manager Stefan Isaacs, had said: ‘Dialling back stimulus in the face of increased market volatility and a tightening of financial conditions in Italy will leave the doves on the ECB Council uneasy.’
The ECB, led by Mario Draghi (pictured), launched its bond-buying programme in January 2015.