28 Nov 2014
ECB: “What does T-LTRO 1 take-up mean?” - Rabobank
FXStreet (Guatemala) - Analysts at Rabobank explained that the first T-LTRO was run by the ECB on September 18 and saw EUR 82.6bn in funds being taken up by Eurozone (EZ) banks.
Key Quotes:
“Following this, in our Rabo Rate Directions we said that we viewed our EUR 270bn T-LTRO 1&2 take-up estimate acting as an absolute cap rather than being the mean of a forecast range”.
The big picture...
“We would argue that the exact number for T-LTRO 2 does not really matter (despite the last four pages of explanation!). The bigger picture is that whether it comes in on consensus (around EUR 140bn), well above it (up to even EUR 50bn higher) or below consensus (for example near our own estimate of EUR 126bn), it remains significantly below what the ECB envisaged when it was originally announced”.
“It seems clear that all of the balance sheet expansion measures announced to date (the T-LTROs, CBPP3, ABPP1 and even the rumoured corporate bond purchases) will be very far from achieving the ECB’s aim of getting the size to EUR 3trn. This is particularly true now that Draghi has emphasised the urgency of returning inflation to target”.
“For the time being we remain comfortable that sovereign QE will be enacted by the ECB at their March meeting. Effectively the ECB will be taking
the control of its balance sheet size out of the hands of the banks and instead bringing it ‘in house’”.
“We would argue that the risks posed by T-LTRO 2 take-up size to our March estimate are asymmetric”.
“This is because a number, for example, EUR 50bn above consensus will still see the current measures being viewed as falling well short of what is required and so see us likely sticking with March. However, a T-LTRO 2 take-up that is EUR 50bn below consensus (and so almost the same size as T-LTRO 1) will significantly ramp up the pressure on the ECB and likely see expectations shift to January".
"Our own below, but not significantly below, consensus T-LTRO 2 estimate shows that while we remain comfortable with our March call we see the risk tilted to this being needed to be moved to earlier in the year (to January given that there is no ECB meeting in February) rather than later”.
Key Quotes:
“Following this, in our Rabo Rate Directions we said that we viewed our EUR 270bn T-LTRO 1&2 take-up estimate acting as an absolute cap rather than being the mean of a forecast range”.
The big picture...
“We would argue that the exact number for T-LTRO 2 does not really matter (despite the last four pages of explanation!). The bigger picture is that whether it comes in on consensus (around EUR 140bn), well above it (up to even EUR 50bn higher) or below consensus (for example near our own estimate of EUR 126bn), it remains significantly below what the ECB envisaged when it was originally announced”.
“It seems clear that all of the balance sheet expansion measures announced to date (the T-LTROs, CBPP3, ABPP1 and even the rumoured corporate bond purchases) will be very far from achieving the ECB’s aim of getting the size to EUR 3trn. This is particularly true now that Draghi has emphasised the urgency of returning inflation to target”.
“For the time being we remain comfortable that sovereign QE will be enacted by the ECB at their March meeting. Effectively the ECB will be taking
the control of its balance sheet size out of the hands of the banks and instead bringing it ‘in house’”.
“We would argue that the risks posed by T-LTRO 2 take-up size to our March estimate are asymmetric”.
“This is because a number, for example, EUR 50bn above consensus will still see the current measures being viewed as falling well short of what is required and so see us likely sticking with March. However, a T-LTRO 2 take-up that is EUR 50bn below consensus (and so almost the same size as T-LTRO 1) will significantly ramp up the pressure on the ECB and likely see expectations shift to January".
"Our own below, but not significantly below, consensus T-LTRO 2 estimate shows that while we remain comfortable with our March call we see the risk tilted to this being needed to be moved to earlier in the year (to January given that there is no ECB meeting in February) rather than later”.