6 Jun 2014
Draghis surprised the markets yesterday – Danske Bank
FXStreet (Edinburgh) - According to Anders Fischer, Analyst at Danske Bank, President Mario Draghi caught markets off guards with yesterday’s easing measures.
Key Quotes
“The ECB took a very significant easing step yesterday and introduced a number of easing measures”.
“Even though the market was prepared for further monetary policy easing measures, the ECB managed to surprise with rate cuts (taking the deposit rate into negative territory), new targeted LTROs with a fixed rate until up to a 4Y maturity and further liquidity-enhancing policies with a suspension of the sterilisation of the SMP purchases and expansion of fixed rate full allotment at least until December 2016”.
“Even though the ECB will most likely not ease more within the next year (effects to the real economy are delayed with Draghi pointing towards three to four quarters), it still indicates it is ready to do more and, according to Draghi, ‘if need be, we aren’t finished here’”.
“Apart from ABS purchases (where the ECB yesterday decided to intensify the preparatory work), the only instrument which seems to be left in the toolbox is QE”.
“The ECB signals that it is ready for that and the statement says the Governing Council is still unanimous in its commitment to use unconventional instruments”.
“However, we continue to believe the bar for a broad-based QE programme is very high and we still believe it requires a worsening of the medium-term outlook for inflation”.
“Going forward, the negative deposit rate and the series of targeted LTROs will have a big impact keeping money market at lower levels and driving down yields on shorter maturity bonds due to the ‘hot potato effect’”.
Key Quotes
“The ECB took a very significant easing step yesterday and introduced a number of easing measures”.
“Even though the market was prepared for further monetary policy easing measures, the ECB managed to surprise with rate cuts (taking the deposit rate into negative territory), new targeted LTROs with a fixed rate until up to a 4Y maturity and further liquidity-enhancing policies with a suspension of the sterilisation of the SMP purchases and expansion of fixed rate full allotment at least until December 2016”.
“Even though the ECB will most likely not ease more within the next year (effects to the real economy are delayed with Draghi pointing towards three to four quarters), it still indicates it is ready to do more and, according to Draghi, ‘if need be, we aren’t finished here’”.
“Apart from ABS purchases (where the ECB yesterday decided to intensify the preparatory work), the only instrument which seems to be left in the toolbox is QE”.
“The ECB signals that it is ready for that and the statement says the Governing Council is still unanimous in its commitment to use unconventional instruments”.
“However, we continue to believe the bar for a broad-based QE programme is very high and we still believe it requires a worsening of the medium-term outlook for inflation”.
“Going forward, the negative deposit rate and the series of targeted LTROs will have a big impact keeping money market at lower levels and driving down yields on shorter maturity bonds due to the ‘hot potato effect’”.