Is the return of QE imminent for the ECB?
There is increasing chatter in markets for the ECB to restart its QE program
Despite coming to a halt at the end of last year, QE has never really left the lips of market participants in 2019. As the euro area economy struggles and the ECB also looking less confident about reaching their inflation target (alongside risks of expectations deanchoring), there's a good chance we could see asset purchases begin again.
Bloomberg has a good round-up of what most firms are saying about the issue:
JP Morgan
"At this stage, we do not expect more QE, but we emphasise that the visibility is extremely low in terms of the macro outlook and the ECB's response to it."
BNP Paribas
"We think the ECB will announce a €35-40 billion monthly pace of purchases in December for six to nine months, leaving the door open to a further extension, with risks of an earlier announcement. The new QE program will concentrate on government bonds, in our view, complemented by purchases of private sector assets."
Morgan Stanley
"Sub-par growth and below-target inflation lead us to believe that the ECB now thinks that extra stimulus is warranted. This likely means reactivating its asset purchase program. When exactly and in what size is uncertain. While it could turn out to be different, our assumption is that the central bank could start buying something like €45 billion a month as early as Q4, with an announcement in September."
ABN Amro
"We expect the ECB to relaunch QE given the deterioration of the economic outlook and sliding inflation expectations. The second QE program could total €630 billion and run for nine months at €70 billion a month from January 2020 onwards. The new program could see relatively more purchases of national agency and regional bonds and corporate bonds."
Danske Bank
"We now expect the ECB to cut rates by 20 bps, introduce a tiering system, extended forward guidance, and restart QE in a package which could come already in September. Our baseline is that the ECB will restart QE for 12 months at a monthly place of €45-60 billion a month".
HSBC
"The current growth and inflation outlook, alongside EU politics, mean we don't see an imminent restart of QE, although a shift in tone on technical constraints means a credible program is possible if downside risks crystallise."
Goldman Sachs
"A return to large-scale QE is complicated by the ECB's self-imposed limits on its asset purchases. But significant headroom remains to expand corporate sector purchases and we estimate that the ECB could buy up to €400 billion in sovereign debt under the current constraints. A limited QE program - for example, with monthly purchases of €30 billion for nine month - seems feasible within existing constraints."
Despite many firms eyeing a return of QE later in the year, the caveat is that the ECB doesn't really have much room to explore with asset purchases. Here's the reason why, in case you missed out on the headlines at the end of last month.
As such, I reckon the ECB will have to ponder carefully about whether or not they will want to pursue this path because given the current situation, they don't have very much ammunition to fight back against a severe downturn and deanchoring of inflation expectations.
If they restart QE but fail to inspire market confidence, that's yet another bullet wasted and they can't afford that with what limited options they have now.
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Reprinted from Forexlive，the copyright all reserved by the original author.
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