20 Nov 2015
ECB QE options: Relaxing the constraints – TDS
FXStreet (Delhi) – Research Team at TDS, lists down the various options available to ECB for its QE programme which is likely to be announced soon.
Key Quotes
“Under the current conditions and at current yield levels we estimate that the ECB have enough eligible assets to easily run to the current September 2016 end date and indeed they have enough eligible assets as of right now to increase monthly purchases by €15bn and extend the duration of the program by around 6 months.”
“We estimate a decline in yields by 20bps reduces the pool of eligible assets by around €200bn. This creates a dilemma for the ECB—either they lower the deposit rate or clearly rule out further rate cuts so that the market can unwind the recent move lower in yields in order to maintain the size of the existing pool of QE assets.”
“Given this, we expect the ECB to keep the focus on monetary policy at its December press conference as opposed to technical changes (leaving this for next year). We expect them to lower the deposit rate by 20bps, announce additional monthly government bond purchases of €10-15bn and extend the duration of the program by at least six months, with a strong chance that the extension is done by a shift to QE infinity which removes calendar-based guidance and simply maintains that the program is intended to run as long as is necessary to achieve the inflation target.”
Key Quotes
“Under the current conditions and at current yield levels we estimate that the ECB have enough eligible assets to easily run to the current September 2016 end date and indeed they have enough eligible assets as of right now to increase monthly purchases by €15bn and extend the duration of the program by around 6 months.”
“We estimate a decline in yields by 20bps reduces the pool of eligible assets by around €200bn. This creates a dilemma for the ECB—either they lower the deposit rate or clearly rule out further rate cuts so that the market can unwind the recent move lower in yields in order to maintain the size of the existing pool of QE assets.”
“Given this, we expect the ECB to keep the focus on monetary policy at its December press conference as opposed to technical changes (leaving this for next year). We expect them to lower the deposit rate by 20bps, announce additional monthly government bond purchases of €10-15bn and extend the duration of the program by at least six months, with a strong chance that the extension is done by a shift to QE infinity which removes calendar-based guidance and simply maintains that the program is intended to run as long as is necessary to achieve the inflation target.”