The ECB and its possible end of the QE program

The chairman of the European Central Bank said the asset purchasing program which has lasted for 7 years would possible end next month. The asset purchasing program has impacted the European financial market as well as the European economy significantly. The function of this monetary policy program is to supply more cash flow into the economy as well as the financial market in order to lower the costs of financing thus stimulating investment, consumption and production.

The end of the asset purchasing program means the European Central Bank is going to lower its money supply to the market. When the money supply is cut, it could add deflationary pressure, and appreciation pressure. Therefore, once the program ends, the inflation in the Eurozone is very likely to be lowered, and the exchange rate of the Euro is likely to stay strong or even appreciate further.

In addition, recently during the recent period, the interest rates are relatively low for most countries in the Eurozone; however, there has been a period that the financial institutions are very conservative about their lending and investment decisions, once the asset purchasing program ends, small and median companies may find it even harder to seek investment or lending from financial institutions. Therefore, the investment may be lower after the program ends.

The economic growth rates of many Eurozone countries stay low; therefore, they cannot benefit further from the expansionary monetary policy, and when the Euro appreciates further, countries with high public debt levels, like Greece, will become even more difficult to pay back their debts. There is one more event for the Eurozone, which is Brexit. There is definitely no turning back for Brexit and Brexit could cause lowering trading for some Eurozone countries. Since Britain is one of the major trade partners of the Eurozone, when Britain leaves the EU, the trading is quite likely to drop to some degree, this could hurt some economies in the Eurozone.

Overall, I still think the end of the asset purchasing program of the ECB will further slow down the economic growth of the Eurozone in general, and the inflation in the Eurozone is likely to be lower and the Euro is likely to further appreciate.