It took several months for President Draghi to convince the Governing Council to implement QE. The cost of entry into this unchartered territory has clearly been big. The cost of QE exit is probably high too.
As the Fed's example suggests, even if the outlook improves, the risk of a policy mistake is seen as asymmetric from a central bank point of view. This suggests that we would need to see a marked and sustainable improvement in economic activity, labor market, core inflation and inflation expectations before the ECB would reconsider QE.
The ECB might be tempted to change its policy mix if the supply of eligible assets becomes too scarce. For instance, it could start tapering earlier than September 2016, in exchange for more liquidity (TLRO). By doing that, the ECB could keep the accommodative stance of its monetary policy, keep signalling low interest rates and even achieve the same increase in its balance sheet size.
"In view of our still-low inflation forecasts for 2017-18, we expect asset purchases and cheap liquidity provisions to continue beyond September 2016, albeit at a tapered pace. A first ECB rate hike is only forecast for mid-2018", said Societe Generale in a report on Friday.
