The firm comments on the ECB outlook in a client note
The firm is of the view that the ECB will opt for a 20 bps rate cut in its deposit facility with tiering, enhanced forward guidance and a return to QE in September.
Adding that asset purchases will likely include corporate bonds and sovereign debt within the existing constraints, combined with a signal that the ECB could increase QE headroom by raising the issuer limit. This was an issue talked about last week here.
The firm argues that the easing bias will be reintroduced later this month by the ECB indicating that policy rates can go lower and they could then further extend their forward guidance by pushing out the "mid-2020" comment.
With regards to tiering, the firm sees the ECB structuring it in such a way to give banks allowances based on a trailing average of their excess reserves held at the ECB. In essence, it would help to provide relief to banks incurring a cost from holding excessive reserves with the central bank.
As for my take, unless inflation expectations threaten to deanchor and economic developments turn much worse from here, a 10 bps rate cut to the deposit facility is more likely the case with QE being reintroduced later on - possibly December. But we'll see.
