ECB QE should work, unlikely to extend beyond Sept 2016: traders

[LONDON] The European Central Bank's quantitative easing programme will be enough to bring inflation back to target, a slim majority of eurozone money market traders polled by Reuters said.

Eleven of 19 traders polled said the ECB's near trillion euro QE would bring inflation close to 2 per cent. Economists polled by Reuters immediately after Thursday's announcement had narrowly said it would not.

While economists said last week the programme would be extended beyond the planned ending in September 2016, nine traders said it was unlikely to be prolonged and one said it was very unlikely.

The sovereign bond purchase programme unveiled on Thursday was the ECB's latest salvo in its battle against deflation - a separate poll showed eurozone inflation probably fell to -0.5 per cent annually in January.

A majority of traders polled, 12 of 19, expect holders to be willing to part with enough sovereign bonds for the ECB to meet its goal of purchasing around 50 billion euros worth per month.

"I think the ECB ... will find a way to meet the target. The pool of eligible assets is large enough to be successful," said a trader at a large dealer.

Next week, banks will repay 6.5 billion euros of the second long-term crisis loan they took three years ago, the poll found. The first tranche matures on Thursday and together, 14.8 billion euro will be repaid this week.

Banks were also seen taking 13.0 billion euros at the three-month auction, more than the 10.2 billion euros they borrowed last time.

At the regular weekly operation, ECB will lend 130.0 billion euros to banks, according to the poll, more than the 125.3 billion euros lent last time.

REUTERS