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1 Nov 2013
Flash: Four questions for the ECB, one answer – BAML
FXstreet.com (London) - Research teams at Bank of America Merrill Lynch said, “ahead of the ECB meeting on November 7, we address four key questions that we believe are occupying the market's mind, focusing on what it would take for the ECB to loosen its policies further”.
Key Quotes:
“All the conditions that we discuss are risk scenarios, except for a 25bp refi rate cut”.
“We argue that the call for a deposit cut is a close one: if the ECB does not move, it risks being perceived by markets as never willing to venture into this territory; on the other hand, we are skeptical about the benefits of a negative deposit rate, in light of all possible negative side effects”.
“Separately, we see increasing risks of liquidity tensions during the CA (comprehensive bank assessment, including asset quality review and stress tests) and, therefore, a rising probability of an LTRO taking place late 1Q14”.
Key Quotes:
“All the conditions that we discuss are risk scenarios, except for a 25bp refi rate cut”.
“We argue that the call for a deposit cut is a close one: if the ECB does not move, it risks being perceived by markets as never willing to venture into this territory; on the other hand, we are skeptical about the benefits of a negative deposit rate, in light of all possible negative side effects”.
“Separately, we see increasing risks of liquidity tensions during the CA (comprehensive bank assessment, including asset quality review and stress tests) and, therefore, a rising probability of an LTRO taking place late 1Q14”.