ECB Preview: Possible QE extension, given a lack of alternatives – HSBC

Research Team at HSBC expects the ECB to announce another six-month extension of QE at EUR80bn per month at its 8 December meeting.

Key Quotes

“Due to the recent rise in bond yields, this may only require increasing to 50% (from 33%) the limit for bonds without Collective Action Clauses (CACs). Nothing is certain, however, and there is a risk the ECB opts to wait a few months before extending, announces a shorter extension, or opts for another form of monetary stimulus altogether, although we think this is unlikely.”

“In our view, the underlying inflation situation warrants further easing. Despite a waning drag from energy prices, core and services inflation remain muted and we see few signs of emerging pressures in the key drivers of inflation (wages, pricing behaviour of firms). We think financial markets got carried away about the European re-inflationary consequences of the US election result, as reflected by the rise in 5yr-5yr forward Eurozone inflation swap rates.”