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ECB taper talk could have longer to run

Get ready for a bout of taper talk — or will the wait continue?

The European Central Bank holds its next monetary policy meeting on Thursday and investors are on the look out for signs of its thinking on the reduction of the €60bn bond-buying stimulus programme.

The strong euro has eaten into expectations that September will be when the ECB’s governing council starts to point to when and by how much it might trim quantitative easing.

Analysis from Bank of America Merril Lynch points out that the shared currency’s ascent is a form of tighter monetary policy in itself. It thinks that after the euro broke back above $1.20 last week, albeit briefly, the ECB is unlikely to set out a path for tapering until its US counterpart has set out its stall.

“If the Fed chooses to offset the beginning of its balance sheet offloading with a revision in the [timing of its rate-rise outlook], additional pressure on the euro’s exchange rate would in our view warrant a recalibration of the ECB’s own policy,” says Gilles Moec, Europe economist at the US bank.

“It is only if the governing council has already decided to opt for a dovish surprise — a significantly slower pace of QE adjustment that the market currently expects — that it could take the risk of disclosing its intentions already.”

Meanwhile, BNP Paribas expects the ECB to “prepare the ground” for an October announcement of tapering. The long wait for signals on tapering could have further to go.