10 Jun 2013
Flash: ECB likely to correct to lower short term rates – Merrill Lynch BoA
FXstreet.com (London) - Analyst tams at Merrill Lynch BoA said that the ECB disappointed markets by signalling it would stay on hold for both conventional and unconventional measures.
ECB Press Conference
They explain that the Markets seemingly expected signals of further accommodation. The main messages that they said that were coming out of the press conference were:
1) rates are on hold as long as economic
Developments are in line with the ECB’s projection of a progressive recovery (and the absence of any discussion of short term rates volatility was disappointing on this), but if they move it will likely be in tandem with changes to repo operations;
2) any action on credit easing is impending on consolidating the banking sector balance sheet, which is unlikely to be achieved this year. As a result, stock markets sold off, interest rates and the euro went up. That said, they will monitor speeches from ECB members in the coming days: they think the ECB is likely to correct market interest rates moves that followed the press conference to get back to lower short term rates.
ECB Press Conference
They explain that the Markets seemingly expected signals of further accommodation. The main messages that they said that were coming out of the press conference were:
1) rates are on hold as long as economic
Developments are in line with the ECB’s projection of a progressive recovery (and the absence of any discussion of short term rates volatility was disappointing on this), but if they move it will likely be in tandem with changes to repo operations;
2) any action on credit easing is impending on consolidating the banking sector balance sheet, which is unlikely to be achieved this year. As a result, stock markets sold off, interest rates and the euro went up. That said, they will monitor speeches from ECB members in the coming days: they think the ECB is likely to correct market interest rates moves that followed the press conference to get back to lower short term rates.