The European Central Bank this week cut three policy rates further in an effort to guide short-term interest rates even lower. The ECB also announced that it was embarking on a program to buy asset-backed securities, and indicated it is prepared to ease policy even further. The ECB’s actions were taken against a backdrop of weak economic growth and essentially no inflation. We expect that growth will remain sluggish and that inflation will remain non-existent for the foreseeable future.
Therefore, we look for the ECB to begin a QE program centered on sovereign bonds at some point over the next few months.
Therefore, we look for the ECB to begin a QE program centered on sovereign bonds at some point over the next few months.
ECB Cuts Rates Further and Starts to Buy ABS
Two weeks ago ECB President Draghi indicated that the central bank could ease again when he stated that the ECB “stands ready to adjust (its) policy stance further.” Many analysts thought these remarks indicated that the ECB could eventually embark on a program of quantitative easing (QE), much as its U.S. and U.K. counterparts have done over the past few years. Therefore, the decision on Thursday by the Governing Council of the ECB to cut rates further caught many analysts by surprise.
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