ECB meeting preview - & the risk side for the euro
A small piece from ANZ's note, this on the risk for the euro from the European Central Bank meeting
- The market expects a cut to the benchmark rate coupled with a resumption of asset purchases.
- Anything short of this is likely to light a candle under the euro, which has been weighed down by expectations of QE.
- Recent division over policy on the ECB board suggests this a real possibility.
- We expect a deposit rate cut at the September meeting and a commitment to restart asset purchases - in our view, sovereign bond purchases of €40bn per month.
ECB to deliver a comprehensive easing package
- (1) QE of €45bn over 15 months, implying an overall envelope of €675bn, c.70% of which would be sovereign bonds. We do not think the ECB will change issue/r limits at this stage.
- (2) A cut of 20bps in the depo rate to -0.6%, which would also make TLTRO-III, which will be launched in September, more attractive.
- (3) The introduction of a tiered deposit rate.
- (4) New interest rate forward guidance that will make it clear that rate hikes will happen only long after the end of the new QE programme.