ECB and tapering: Not a short term option – RBC CM

Research Team at RBC Capital Markets, notes that late yesterday, a Bloomberg story was published quoting 'ECB sources' and suggested that a consensus is forming at the ECB that the bond buying might have to be reduced after the Mar17 end date.

Key Quotes

“This came somewhat unexpected for markets as almost all analysts and market participants (ourselves included) are talking about option how to extend QE rather than curtail it. So this was catching the market by surprise and sent the EUR higher in the FX market.

Our take is that this is a 'story' with very little concrete to hang our hat on. Also worth recalling is, that there were plenty of 'sources' stories out there previously that suggested that the ECB would be looking at changing the capital key.

What we do know is: the ECB has not achieved their inflation target and the standard phrase in the communication has been so far that the QE programmes "are intended to run until the end of March 2017, or beyond, if necessary, and in any case until the Governing Council sees a sustained adjustment in the path of inflation consistent with its inflation aim." If they abandoned the programmes before the inflation target has been achieved would be quite the blow to credibility we would argue. To our mind, this story is unlikely to be the full picture, but we will only know better in two weeks' time when the ECB meets again.”