According to Carsten Brzeski, Chief Economist at ING, with the end of the ECB’s net asset purchases, at least one unconventional measure should be shelved now.
“Expectations that the end of QE would lead to surges in bond yields have – so far – been proven wrong. However, let’s not forget that there is still a reinvestment programme in place.”
“The ECB’s balance sheet will hardly shrink in the coming months. As successful as the transition has been, there will be little time for the ECB to relax. As of next week, all eyes will be on what is coming next.”
“For the time being, the ECB should keep all its cards close to its chest and stick to the current forward guidance on rates and the reinvestment horizon of at least one year. This keeps all options open for further normalisation and a first rate hike at the end of next year but also for keeping rates at their current level for much longer. However, if things really get nasty, next year’s discussions on the timing of the first rate hike could easily morph into discussions on whether the second unconventional measure (negative deposit rates) should be shelved or whether to hike rates at all.”
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