ECB: Rate cut and increase in purchases at the March meeting – Goldman Sachs

Discussion in 'Fundamental Analysis' started by FXStreet_Team, Feb 26, 2016.

  1. FXStreet_Team

    FXStreet_Team Well-Known Member Trader

    Oct 7, 2015
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    Dirk Schumacher, Research Analyst at Goldman Sachs, suggests that against the background of weaker conjunctural indicators and still undesirably low inflation, a likely big downward revision to the macroeconomic outlook in the updated staff projections and dovish comments from several Governing Council members, they change their forecast for the ECB meeting on March 10.

    Key Quotes

    “We now expect a more substantial easing package to be announced, including an increase in the monthly pace of asset purchases in addition to a lowering in the depo rate.

    We continue to expect a cut in the deposit rate by 10bp to -0.4%. But we now also expect the introduction of, or at least the announcement of the future introduction of, a tiered-rate system for the remuneration of excess reserves held at the central bank. The main intention behind this announcement, in our view, would be to signal the potential for further rate cuts and hence an increase in the ECB’s room for manoeuvre along this dimension.

    We think, however, that many members of the Governing Council have reservations about too aggressive a use of this instrument and we therefore still view a 10bp cut in the depo rate as the most likely scenario.

    With respect to the Asset Purchase Programme (APP), we now expect an increase in the volume of monthly purchases to €70bn, from €60bn currently. While a rise in the purchase volume would increase concerns about a potential scarcity of German Bunds, we do not think that the ECB will announce at this stage a change to any of the parameters of the APP to address this problem (for more on this, see yesterday’s European Economics Daily). We also continue to expect an extension of the programme from March 2017 currently to September 2017.

    Our usual ECB preview, to be published next week, will include a more detailed discussion of the most recent developments and how they are likely to influence the debate in the Governing Council.”
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