Analysts See ECB In Wait-See Mode; May Cede On Greek Bonds

Author: Market News International | Category: News

PARIS (MNI) – Financial market analysts mostly agreed that the ECB
is now in wait-and-see mode on interest rates, as the Eurozone economy
shows increasing though still tentative signs of stabilization.

Some, however, said they still expected a rate cut as early as next
month in light of a still worrying credit picture.

Some analysts thought Draghi had hinted the ECB might contribute
some of the profits on its Greek bond holdings to help Greece reduce its
debt, though others said he had been “tight lipped” on the subject.

Below are excertps from analysts’ comments:

JOERG KRAEMER, Commerzbank: “[Draghi] he said the sale of ECB owned
Greek government bonds to the EFSF bailout fund without a loss would not
be monetary financing of governments which is forbidden by the ECB
statute. This comment is very interesting because there have been a lot
of media reports speculating that the ECB could sell its bonds to the
EFSF at the average purchasing price of about 75. Such a sale would mean
that Greece would need to repay 25% less at the time of maturity.
Consequently, less money would flow back to the ECB; the amount of
central bank money outside the ECB would increase if the ECB would
participate in a debt restructuring. Insofar, it would be a form of
monetary financing. However, there would be no need for the ECB to take
a loss, which is why we see a significant probability for an ECB
participation in a Greek debt restructuring.”

MATTEO COMINETTA, UBS economist: “I think the main message was
broadly in line with what we expected. The ECB is in a waiting mode in
the sense that leading indicators and hard data showed some improvement
or at least some signs of stabilization. It may be that economic
activity fall less than expected. On the other hand, the effect of the
three-year LTRO still has to be seen. The ECB wants to understand how
these two things play out before deciding what to do next. We expect a
[refi rate] cut next month. The economic situation is pretty dire. It’s
true that there have been signs of stabilization, but part of this could
be due to the weather, which was very mild until a week ago. So, I think
that, unless data come in very strong in the next month, they will cut
again. And then we penciled in another 25-point cut in April, but I
think that one will be more data dependent.”

JONATHAN LOYNES, Capital Economics: “Draghi was tight-lipped on the
question of whether the ECB would be prepared to take a haircut on its
holdings of Greek debt, but said on several occasions that any losses on
its purchases would count as ‘monetary financing’ and hence violate the
ECB’s treaty. Admittedly, that might leave open the possibility of some
reduction in the ECB’s profits on its purchases – remember that it made
them at well below par prices. With agreement on the latest Greek
austerity programme having reportedly been reached today, the precise
shape of the debt restructuring – and any ECB involvement – should soon
become clear. Overall, though, the message from the ECB remains pretty
clear. While it remains happy to fulfil its role as lender of the last
resort to the Eurozone’s banks, the region’s governments should sort
their fiscal problems out for themselves.”

CARSTEN BRZESKI, ING: “Draghi repeated several times that financing
government debt by the ECB was forbidden by the treaties. In this
context, Draghi also said that giving money to a bailout programme was
prohibited. Even selling the ECB bonds to the EFSF could be seen as
government financing. Taking profits and redistributing these to the
national central banks might be a possibility. The ECB’s role in any PSI
or OSI still hangs in the balance. It is obvious that the ECB is not
willing to take a loss and even hesitant to sell to the EFSF. We might
know more after tonight’s Eurogroup meeting in Brussels. In its role as
the fire brigade for the Eurozone economy, the ECB is leaning back,
keeping its powder dry and will wait-and-see…Rate cuts, however, are
not yet off the table, but are highly conditional on growth.”

HOWARD ARCHER, IHS Global Insight: “We had considered that there
was a very decent chance that the ECB could cut interest rates from
1.00% to 0.75% in March, but this now looks less likely. Nevertheless,
we still think that the ECB will eventually bring interest rates down
lower, which reflects our belief that the Eurozone will suffer
appreciable economic weakness over the early months of 2012, at least.
And we anticipate that mounting evidence of retreating inflationary
pressures will give the ECB increasing scope to bring interest rates
lower. So we suspect that the ECB will end up cutting interest rates
from 1.00% to 0.75% before too long and we still think there is a very
real possibility that interest rates could eventually come down as low
as 0.50%.”

LUIGI SPERANZA, BNP Paribas: “Interest rates were not even
discussed at the meeting, but the downbeat assessment of credit
conditions leaves the impression that the ECB has a very open mind on
the option of additional conventional easing and we have little reason
to change our view it will cut the refi rate again by 25 bps, probably
at the March meeting in tandem with the new staff projections…. In
sum, the concern over the tightening in credit standards and the further
slowdown in monetary aggregates prevailed on the relief from the
reduction in financial stress and some tentative stabilisation in the
surveys. The door for additional conventional easing is therefore open
and we continue to see a greater probability than the market is
discounting that the refi rate will be lowered by another 25 bps in the
near term.”

ARND SCHAEFER, West LB: “I think (the ECB) will wait and see.
Draghi mentioned twice or more that the main topic is to avoid a credit
crunch. That is why we had the three year tender in December and now he
is waiting for the next one at the end of this month. Then he will look
to see what happens with the credit markets. If you think about economic
developments, he says more or less that it is also very weak. So, in our
view, looking at the next six months, we see one or two rate cuts in our
forecast (25 basis points each), [down to] 0.5% at the end.”

MARCO VALLI, UniCredit: “As expected, today the ECB left the refi
rate at 1% and took no further steps on unconventional policy. Draghi
also announced that Greek party leaders have reached an agreement on the
austerity deal. The overall tone of the press conference was more upbeat
than in January, and much in line with what we had anticipated. Today,
Draghi went out of his way making clear that there is no stigma attached
to using the 3-year LTRO – making the statement unprovoked (along with a
public slamming of bankers suggesting otherwise), clearly suggesting
that he wants banks to use this facility aggressively. With the ECB now
in wait-and-see mode, we feel happy with our forecast of no further rate
cuts down the road.”

JULIAN CALLOW, Barclays: “While the Q&A did not address inflation
risks, we note that the statement also removed from the opening
paragraph the line from a month earlier that ‘cost, wage and price
pressure in the euro area should remain modest’, while in the
‘concluding’ monetary assessment he argued only that ‘underlying price
pressures should remain limited”. Our conclusion from this would be
that, after incorporation of recent price indications, including from
commodities and underlying producer prices, and from the reduced
downside risks to the growth outlook, the Council does not feel that the
inflation is set to decline quite so much during the course of 2012 as
it might have felt one or two months previously.”

–Paris newsroom, +331-42-71-55-40;

[TOPICS: M$X$$$,M$$EC$,M$Y$$$,MGX$$$,M$$CR$]

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