The European Central Bank (ECB) yesterday announced the extension of its current bond-buying program while the interest rates at the current level. Under the current program, ECB is set to buy public sector bonds at the pace of €80 billion per month until March 2017. It announced that after the expiry of the current program it would buy similar bonds until December and reduced the pace to €60 billion per month. So what did the ECB actually delivered? Tapering or easing.

We, at FxWirePro, believe that the ECB delivered a mix; a dovish tapering or a hawkish easing.

Throughout the Press conference and some policymakers at later speech tried to convince that tapering wasn’t discussed and the reduction in the purchase was a response to an improvement in the economy but we believe otherwise. The policy action was dovish undoubtedly but it was nothing short of a tapering too. Let’s take the example of Fed, the pioneer of tapering. When the Fed started tapering at every Fed meeting starting January 2014, the quantitative easing was still going on, just like ECB’s going on too. However, there is a difference and the action was dovish too.

The action was dovish in a sense that the market was expecting six month’s extension to the easing in the tune of €80 billion per month or in total €480 billion, whereas ECB delivered an easing of €540 billion (9months *€60 billion). In addition to that, it changed rules which would enable the central bank to purchase securities below deposit rate yield, and that would push the short rates even lower. Another major difference between the ECB and the FED tapering is that the former is likely to adopt an inflation outlook influence variable tapering whereas the Fed pursued more of a fixed one, $10 billion per month.