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ECB's hand could be forced on market deteriorations - Rabobank

Discussion in 'Fundamental Analysis' started by FXStreet_Team, Jan 21, 2016.

  1. FXStreet_Team

    FXStreet_Team Well-Known Member Trader

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    FXStreet (Guatemala) - Analysts at Rabobank explained that today, ECB President Draghi hinted at further easing measures in March.

    Key Quotes:

    "The press conference brought back memories of October 2015, when Mr. Draghi also hinted explicitly at measures in the following meeting. This time, however, the message was more composed and perhaps slightly less “pressing” than in October. This was clearly supported by Draghi’s comment that “today, we did not want to determine specific instruments, but rather to assess the current and correct stance.” This will give the Council more flexibility in the run-up to the March meeting and also lowers the risk of markets ‘getting carried away’ with it."

    "Draghi argued that past policy measures “are working”, that recent indicators point to ongoing real GDP growth momentum into 2015Q4 and that the ECB expects the economic recovery to proceed this year, supported by monetary policy, low oil prices and a slightly expansionary fiscal stance. However, he emphasized that “downside risks to the outlook have increased again amid heightened uncertainty about emerging market economies’ growth prospects, volatility in financial and commodity markets, and geopolitical risks” and that inflation dynamics had also deteriorated, requiring the ECB to “review and reconsider” its monetary policy stance in early March, when the next staff projections become available."

    "We therefore believe that action in March is all but certain. We stick to our view that a cut in the deposit rate (-10bp, but with the probability skewed towards a larger cut) will prove the path of the least resistance in the near-term.

    However, looking beyond March (say, June), we think the purchase program is likely to become the preferred candidate for action should economic and financial conditions have further deteriorated (which obviously is a ‘live’ scenario). This would be even more so, should the negative deposit rate regime start to have tangible side-effects."
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