Research Team at RBS, is not expecting any changes to interest rate settings or to the size and scope of the asset purchase programme (APP) at this Thursday’s ECB meeting.

Key Quotes

“We are now expecting the ECB to extend the APP from March 2017 to September 2017. We had previously expected this to be announced at the meeting in December. Extending forward guidance on QE to late 2017 will require significant change to the programme.

The issuer limit is arbitrary and should go, as should the maturity limit (31y). But to credibly extend its purchases of Germany, the Netherlands, and Finland, it must (i) choose to relax the issue limits for individual bonds, (ii) buy at yields below the deposit rate, or (iii) abandon the capital key for PSPP quotas entirely. We think that this will prove the order of preference: the issue limits should be relaxed.”

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