How and when will the ECB “normalise” policy?

We think that the ECB will taper its asset purchases to zero in the first six months of 2018 and begin raising interest rates in 2019. The euro-zone economy as a whole should continue to perform well regardless, but there is a risk of more damaging effects on peripheral economies. With the euro-zone economy growing quite well, there has been increasing speculation about the ECB tightening monetary policy. Some analysts have even talked about the Bank ending its asset purchases of €60bn per month early and raising interest rates before the end of the year. By contrast, we expect the ECB to continue buying assets into 2018. That said, with the risk of deflation diminishing, we think that it will spell out in September its plan to taper QE. This seems most likely to mean reducing purchases by €10bn each month, starting in January 2018. This would bring them to an end by June. It is then likely to continue re-investing the proceeds of maturing bonds to keep the overall stock of asset holdings unchanged over the following years