The following is Barclays Capital's first reaction to today's ECB policy decision:
As expected, President Draghi announced that the Governing Council of the ECB has decided to expand its asset purchase programme and include government bonds and agencies and European institution debt. As of March 2015, the ECB will buy €60bn every month “until end-September 2016". It said it would in any case "be conducted until we see a sustained adjustment in the path of inflation which is consistent with our aim of achieving inflation rates below, but close to, 2% over the medium term”. The credit risk will be partly shared by the Eurosystem (20%), but National Central Banks will have to shoulder the rest of it. The GC also decided to remove the 10bp spread between future TLTROs and MROs.
We think these decisions should help re-anchor medium-term inflation expectations, reinforce forward guidance and lift growth prospects owing mainly to further weakening of the currency and improving financial conditions. However, for the recovery to be sustained, additional structural reforms will be necessary,
The anticipation of today’s ECB decision has already driven debt yields and the effective exchange rate of the euro significantly down over the past few months. The latter fell again significantly last week after the SNB’s decision to give up the floor gave a boost to the euro depreciation. It is likely that today’s decision is also going to have implications for other central banks in Europe, through the exchange rate channel (Denmark, CEE, Sweden and even the UK).
As expected, President Draghi announced that the Governing Council of the ECB has decided to expand its asset purchase programme and include government bonds and agencies and European institution debt. As of March 2015, the ECB will buy €60bn every month “until end-September 2016". It said it would in any case "be conducted until we see a sustained adjustment in the path of inflation which is consistent with our aim of achieving inflation rates below, but close to, 2% over the medium term”. The credit risk will be partly shared by the Eurosystem (20%), but National Central Banks will have to shoulder the rest of it. The GC also decided to remove the 10bp spread between future TLTROs and MROs.
We think these decisions should help re-anchor medium-term inflation expectations, reinforce forward guidance and lift growth prospects owing mainly to further weakening of the currency and improving financial conditions. However, for the recovery to be sustained, additional structural reforms will be necessary,
The anticipation of today’s ECB decision has already driven debt yields and the effective exchange rate of the euro significantly down over the past few months. The latter fell again significantly last week after the SNB’s decision to give up the floor gave a boost to the euro depreciation. It is likely that today’s decision is also going to have implications for other central banks in Europe, through the exchange rate channel (Denmark, CEE, Sweden and even the UK).
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