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27 Nov 2015
ECB: final meeting 2015 and what to expect - Nomura
FXStreet (Barcelona) - Analysts at Nomura explained that they expect the ECB to deliver a package of easing measures on 3 December as the Governing Council responds to a more protracted period of low inflation than first expected at the time the expanded asset purchase programme (APP) was first announced and the downside risks to its medium-term price stability objective.
Key Quotes:
"Baseline view: Our baseline is for the ECB to cut the deposit rate by 10bp to -0.30%, with the door to more cuts being left open, as well as extend the APP until at least “end June 2017, or beyond” (from the current “end September 2016, or beyond”). We now also expect the monthly pace of purchases to be increased to at least €70bn (from January 2016) in order to provide additional volume, but also signalling effects in terms of the extent of easing.
Finally, we expect an expansion of the list of eligible assets to include sub-sovereign paper to assist with the ongoing smooth functioning of the programme, particularly by the Bundesbank. The changes to the APP in line with the above would result in additional stimulus of at least €720bn, with the expanded total APP calibrated at €1.86trn or around 17% of euro area nominal GDP."
"While market expectations for the December meeting are more extreme than our 10bp deposit rate cut baseline, we still expect dovish rhetoric, leaving the door open for further cuts if necessary supported by prospects of a less penal excess reserve remuneration.
It is clear that ECB President Mario Draghi will avoid “underdelivering” significantly versus market expectations. Overall, the news over the past week has not altered our preferred positioning approaching the ECB meeting. We see the risk to our baseline as clearly skewed towards a bigger deposit rate cut."
Key Quotes:
"Baseline view: Our baseline is for the ECB to cut the deposit rate by 10bp to -0.30%, with the door to more cuts being left open, as well as extend the APP until at least “end June 2017, or beyond” (from the current “end September 2016, or beyond”). We now also expect the monthly pace of purchases to be increased to at least €70bn (from January 2016) in order to provide additional volume, but also signalling effects in terms of the extent of easing.
Finally, we expect an expansion of the list of eligible assets to include sub-sovereign paper to assist with the ongoing smooth functioning of the programme, particularly by the Bundesbank. The changes to the APP in line with the above would result in additional stimulus of at least €720bn, with the expanded total APP calibrated at €1.86trn or around 17% of euro area nominal GDP."
"While market expectations for the December meeting are more extreme than our 10bp deposit rate cut baseline, we still expect dovish rhetoric, leaving the door open for further cuts if necessary supported by prospects of a less penal excess reserve remuneration.
It is clear that ECB President Mario Draghi will avoid “underdelivering” significantly versus market expectations. Overall, the news over the past week has not altered our preferred positioning approaching the ECB meeting. We see the risk to our baseline as clearly skewed towards a bigger deposit rate cut."