The European Central Bank (ECB) recently confirmed that it will continue to make net purchases of €15 billion per month under the Asset Purchase Programme (APP) - also known as Quantitative Easing - for the final quarter of 2018, when it expects that net purchases will end.
However, the ECB intends to reinvest the principal payments from maturing securities purchased under the APP for an extended period after that. It also expects that key ECB interest rates will remain at present levels at least through mid-2019.
The winding down of the APP could potentially affect economic activity across the EU through the impact it may have on bank lending, the cost of sovereign funding and market liquidity, which will need to be monitored.
While not possible to predict the future path of ECB monetary policy or interest rates, guidance from the ECB suggests that monetary policy is likely to remain accommodative for some time yet.
As the Deputy is likely aware, the most recent Economic and Fiscal Outlook published by my Department includes an assessment of the impact of policy rate tightening which sets out that the changing stance of monetary policy is a downside risk to the global economic outlook.
However, the negative impacts of tapering are expected to be limited. This view is supported by recent outturns in the euro area which showed steady growth of 1.7 per cent year-on-year, confirming the broad based expansion in the euro area despite weakening foreign demand. Flash estimates from Eurostat also concur with this view. My Department will continue to monitor developments and advise accordingly.
The National Treasury Management Agency (NTMA) has also been contemplating the ending of QE since it commenced. Through taking pre-emptive action - including the early repayment of loans, and the early buyback and switching of near-term maturing bonds for longer maturity bonds - it has significantly improved our debt redemption profile and lowered our interest bill.
The NTMA expects to end this year with over €13 billion in cash to pre-fund ahead of larger bond redemptions. Relative to other sovereigns, Ireland has been particularly pro-active in taking advantage of the highly accommodative interest rate environment of recent years in order to pre-fund.