ECB exit: 2018 or 2021?

"If we manage to put the unconventional tools back into the box when the time comes, we will be able to claim that the ECB successfully achieved its objective. And in my view, this time has come. We need to discuss how to exit from our unconventional monetary policy, and then we need to do it. My opinion is clear: we should begin to scale back our bond purchases at the beginning of next year."

With these words, Sabine Lautenschlager -- Member of the Executive Board of the ECB and Vice-Chair of the Supervisory Board of the ECB - renewed speculations over not only the "discussion" of the Bank's exit strategy but the actual "timing" of the exit.

The "beginning of next year" looks ideal given the euro area financial markets' performance of late. Despite the euro's 12.4% appreciation versus the US dollar this year to date to US$1.18, the Stoxx-50 index has continued its strong run - up 8.8% since the start of the year after gaining only 0.7% in 2016.

What's more the VStoxx - the Euro's version of the VIX index - shows there's little fear. It's currently trading at a reading of 12.6, not far from the record low of 11.2 hit in mid-March this year and many miles away from the all-time peak of 87.5 it reached back in October 2008.

This comes as no surprise given the single currency area's improving economic outlook. One, that has been highlighted by the continued advances in the region's already strong PMI readings - composite (56.7 in September from 55.7 in August); manufacturing (58.1 from 57.4); services (55.8 from 54.7) - and more recently, the International Monetary Fund's (IMF) sharp upgrade to Eurozone GDP growth.

In its October 2017 World Economic Outlook (WEO) report, the IMF lifted its GDP forecasts to 2.1% this year and 1.9% in 2018 from the 1.7% and 1.6%, respectively, it predicted only six months earlier.

According to the IMF, "The increase in growth in 2017 mostly reflects an acceleration in exports in the context of the broader pickup in global trade and continued strength in domestic demand growth supported by accommodative financial conditions amid diminished political risk and policy uncertainty".

This is based on the IMF's assumption that the "European Central Bank should wait for concrete evidence of a steady pickup in inflation before reducing the extent of accommodation".

The IMF predicts headline inflation of 1.5% this year before slowing to 1.4% in 2018 but "Headline inflation is projected to converge to core inflation as energy price effects dissipate and gradually approach the European Central Bank's objective of below but close to 2 percent over the next few years, reaching 1.9 percent only in 2021".

This suggests that the IMF doesn't expect the ECB to exit before 2020 at the earliest.

Read more: IMFECBEuropean Central BankSabine LautenschlagerEurozone GDPInternational Monetary Fundmid-MarchVstoxxWorld Economic Outlook
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