ECB: Timing and sequencing are key - Rabobank

According to the research team at Rabobank, after a market over-reaction (at least in the eyes of the ECB) to Nowotny’s suggestion that the ECB could hike rates prior to ending the asset purchases, several Council members took to the stage to reassure markets that it is illogical to hike before the asset purchases have been concluded.

Key Quotes

“As a result, markets have been pricing out the possibility of a late-2017 or early-2018 deposit rate hike again.”

“Meanwhile, attention is shifting towards a potential side-effect of ECB policy: stress in various short-term markets. President Draghi briefly touched upon the issue in his March press conference, and Mr. Coeuré further expanded on the ECB’s preliminary assessment. He noted that these developments should be monitored, but that the ECB hasn’t yet established whether this is a transitory or permanent effect – and what the ECB’s role is. If the ECB sees lasting distortions as a result of its purchases, the GC may want to intervene. We propose that opening up the deposit facility to more counterparties might be an option.”