- The ECB is about to embark on credit easing. Jean-Claude Trichet emphasised that the ECB will not be embarking on quantitative easing. We look at differences/similarities and the implications of this.
- Credit easing aims at affecting the risk spread across assets, whereas quantitative easing aims at affecting the general level of the longer-term interest rate.
- The ECB move should be enough to positively affect the market for eurodenominated covered bonds while the effect on the overall bond market is likely to be muted.
- In the current situation of financial distress, credit easing appears as the appropriate response. We believe that the ECB will cautiously go down the road of credit easing, but not take a single step along the path of quantitative easing.
- Credit easing is not necessarily sterilised. EUR60bn, however, only amounts to about 4% of the Eurosystem’s current balance sheet. The ECB appears to consider sterilisation important for medium- and long-term credibility.
- Trichet also announced that the EIB will get access to central bank liquidity. This move will help to increase investment in vulnerable sectors and regions. It is not targeted at alleviating government budgets and will do little in this respect.
