1 Dec 2014
ECB may enact QE in march, but risk also tilted towards an earlier move – Rabobank
FXStreet (Barcelona) - The Research Team at Rabobank, notes that ECB may enact the sovereign QE at their March meeting, but T-LTRO 2 estimates indicate a risk for a move earlier in the year.
Key Quotes
“We would argue that the exact number for T-LTRO 2 does not really matter. 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.”
“Therefore 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. 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
“We would argue that the exact number for T-LTRO 2 does not really matter. 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.”
“Therefore 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. 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.”