9 Mar 2016
The ECB’s second chance: This time with feeling – TDS
Richard Kelly, Head of Global Strategy at TDS, continues to see the ECB delivering more easing than the market expects this month, even if composition it ultimately takes could be more complicated than usual given the array of policy options and operational changes which are possible.
Key Quotes
“We look for a 20bps rate cut, a €10-15bn increase in the pace of monthly QE for at least the next six months, and some further injections of liquidity.
But we would caution that there are still risks of disappointment, given activity data hasn’t universally been bad, given the debates on what policy tools can and should be used, and given the uncertain market reactions to changes such as tiered interest rates and the deposit rate floor.
There is also scope for odd feedback loops between their decisions on rate cuts and QE with choices on a tiered interest rate structure and the deposit rate floor on asset purchases which could lead to exaggerated or counterintuitive market moves. Ultimately the ECB is likely to have to compromise something of their previous convictions to make policy more effective this month.”
Key Quotes
“We look for a 20bps rate cut, a €10-15bn increase in the pace of monthly QE for at least the next six months, and some further injections of liquidity.
But we would caution that there are still risks of disappointment, given activity data hasn’t universally been bad, given the debates on what policy tools can and should be used, and given the uncertain market reactions to changes such as tiered interest rates and the deposit rate floor.
There is also scope for odd feedback loops between their decisions on rate cuts and QE with choices on a tiered interest rate structure and the deposit rate floor on asset purchases which could lead to exaggerated or counterintuitive market moves. Ultimately the ECB is likely to have to compromise something of their previous convictions to make policy more effective this month.”