31 May 2013
Flash: timid action in the short run, ECB – Merrill Lynch and Bank of America
FXstreet.com (London) - In the view of Merrill Lynch and Bank of America, the ECB has several options to loosen monetary policy further: interest rates, liquidity operations and/or support to credit, but they doubt that it will employ these measures.
Rather, they believe the bank will try to reassure the market that all options remain open and could cut the refi further by 25bp in the summer on the back of weaker activity and to preserve low market rates. They said that the ECB could then follow this with more unconventional policy, should the situation warrant it. For the moment, they believe the ECB’s economic and inflationary forecasts will be revised down marginally at the June meeting (in line with their own projections), vindicating its cautious approach.
Rather, they believe the bank will try to reassure the market that all options remain open and could cut the refi further by 25bp in the summer on the back of weaker activity and to preserve low market rates. They said that the ECB could then follow this with more unconventional policy, should the situation warrant it. For the moment, they believe the ECB’s economic and inflationary forecasts will be revised down marginally at the June meeting (in line with their own projections), vindicating its cautious approach.