ECB was right in saying QE was working even before it began – poll

By Jonathan Cable

LONDON (Reuters) – The European Central Bank was “about right” in claiming its trillion-euro quantitative easing programme was having a positive impact before it had even begun, according to three quarters of economists polled by Reuters this week.

Minutes from the Governing Council’s March meeting showed members “generally shared the assessment” that significant positive effects from their latest policy decisions could already be seen.

Fifty-seven of 77 economists polled said they agreed. Two said the ECB was too pessimistic. The other 18 said the Council was too optimistic.

“There are clearly certain positive effects visible from QE, mainly through a weaker euro and lower bond yields, which had, however, already started to show beforehand,” said Elmar Voelker at LBBW. “If the ECB is mainly pointing to those anticipation effects, they may be close to ‘about right’.”

Having already slashed interest rates to zero as part of its battle to spur growth and drive up inflation, the ECB announced in January it planned to buy 60 billion euros (billion pounds) of mainly government bonds per month, starting in early March. It said it would aim to do so through to September 2016.

Confirmation that QE was coming caused the euro and sovereign bond yields to fall while stock markets have rallied — Germany’s DAX (.GDAXI) is up around 25 percent and France’s CAC (.FCHI) over 20 percent this year — and a lot of recent data have been surprisingly positive.

And although consumer prices fell 0.1 percent in March year-on-year, as expected, the decline was the smallest this year, official data showed.

The ECB targets inflation at just below 2 percent, and with such a long way to rise, 51 of 77 economists said programme would last until its planned completion date. Sixteen said it would be extended. Only 10 said it would finish early.

“QE was working even before they bought a single bond. It will vindicate them for what they are doing, but it won’t blow them off course,” said Scotiabank’s Alan Clarke. “If you renege on a promise just a couple of months down the road, then you really shoot yourself in the foot and the markets will never believe you again.”

As the ECB hoovers up bonds, its balance sheet will naturally expand. Median forecasts suggest it will be 1.08 trillion euros bigger when the programme ends than its current level of around 2.3 trillion.

ECB President Mario Draghi will hold a press conference after the scheduled April 15 Governing Council meeting.

(Polling by Sarbani Haldar, Kailash Bathija and Aara Ramesh; Editing by Ross Finley, Larry King)