Eurozone likely to face problems after end of ECB purchase programme

The interim conclusion on the PSPP around 14 months after the start of the programme is mixed. Contrary to what had been feared, the ECB has so far always managed to meet its purchase target in full. In spite of its technical success, however, the ECB has not yet met all the aims inherent to the programme. Although lending in the eurozone has risen sharply, inflation is still close to or even below 0%. Medium-term inflation expectations, which are mainly influenced by the trend in the crude oil price, are in fact below the level at the beginning of the PSPP. This was one of the main reasons behind the ECB’s decision to increase the programme volume substantially in March of this year. In contrast, the market-related consequences of PSPP are considerable. Both yields and spreads have fallen sharply in the meantime, while the volatility of bonds has increased. Moreover,…

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