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ECB's Mersch: Credible Exit Stance Needed

The European Central Bank needs a clearer view on how it plans to exit its asset purchases going forward to avoid any knee-jerk market reaction, ECB Executive Board member Yves Mersch said Wednesday.

Ending the monetary stimulus prematurely and too quickly could lead to an asset price collapse and a surge in yields, resulting in negative contagion effects for the economy, Mersch said in a speech in Frankfurt.

"However, we also need to be aware that the longer the [asset purchase] program lasts, the greater the risks associated with it," he said.

"Encouraging the assessment among market participants that QExit may be permanently postponed could exacerbate any cliff effects," Mersch warned.

The ECB needs a credible perspective on exit to mitigate such risks, he added.

Late October, the ECB said the size of its monthly asset purchases will be halved to EUR 30 billion at the start of next year, but they will continue for nine months.

The bank opted the "lower for longer" style of tapering for a second time this year and many hope this would be the beginning of the end of ultra-easy monetary policy since the 2007-08 global financial crisis.

The next ECB policy decision is due on December 14.

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