Analysts at BBH point out that the ECB made it clear last week that it is no hurry to exit its extraordinary policies as it is not convinced that inflation has yet to enter a sustainable and durable path.
“This suggests that the ECB’s balance sheet is likely to expand by more and for longer than may be appreciated by market participants, many of whom are concerned that the ECB will run out of assets it can buy under the current self-imposed rules.”
“If the ECB were to cut its purchases in half to 30 bln euros in the first half of next year, the balance sheet would expand by another 180 bln euro by the end of June 2018. This after expanding by 180 bln euros in Q4 17. If the Fed begins its balance sheet operations in October, by the end of June 2018, its balance sheet would shrink by $180 bln. The ECB also reiterated that it will not raise rate (deposit rate at minus 40 bp and refi rate is at zero) until after its asset purchases are complete.”
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