ECB: Asset purchase plan likely to be steady - AmpGFX

Greg Gibbs, Director at Amplifying Global FX Capital, expects the ECB may wait until September this year before giving the market further guidance and is likely to keep its asset purchase programme steady when they meet on Thursday.

Key Quotes

“The ECB’s “Expanded asset purchase program” (APP) includes the purchase of covered bonds, asset-backed securities, government bonds, and corporate bonds.  Total purchases are targeted at EUR80 bn through to the end of this month.  They are scheduled to fall to 60bn per month in April and to proceed at this rate until the end of this year. And “in any case until the Governing Council sees a sustained adjustment in the path of inflation that is consistent with its aim of achieving” its inflation target.”

“In December last year, the ECB announced the extension of the APP beyond March 2017 to the end of 2017, albeit at the lesser rate of 60bn per month.  This might be regarded as the first step in tapering, but was notable at the time for extending the program for nine months, whereas many thought they would extend six months.”

“In December the ECB also announced it would ease the parameters of the APP to allow a wider range of securities to be purchased; including allowing purchases of government bonds at yields below the deposit rate (-0.4%) and purchases of shorter-term bonds (minimum maturity lowered from 2-year to 1-year). The EUR fell after the 8 Dec ECB policy meeting due to these dovish elements.”

“With nine months left to go on the current APP, there is little pressure on the ECB to comment on what happens next; although the press core will probably pressure ECB President Draghi to discuss a potential taper.  The official policy press release is likely to state no change in the rates policy or APP.”

“The ECB waited until the program had 3-months left to run in December last year before extending the plan.  On this schedule, the ECB may wait until September this year before giving the market further guidance.”