6 Jun 2013
Flash: ECB Bazookas and Berthas unlikely – Merrill Lynch and BoA
FXstreet.com (London) - Research teams at Merrill Lynch and BoA said that the the ECB has several options to loosen monetary policy this week.
They said it could act on rates (cut the refi and narrow the corridor, cut the refi and bring deposit rates into negative territory, extend the corridor without cutting the refi rate); liquidity operations (relax collateral requirements, extend the maturity of exceptional LTRO); and/or support credit (E/I-TALF, credit easing through ABS purchases or through national central banks). They believe the ECB will remain cautious, as data has stabilized somewhat and the ECB continues to investigate measures to support bank lending. The strongest argument, they say, for a rate cut is the sell-off over the last month, so they would recommend long positions going into the ECB meeting.
They said it could act on rates (cut the refi and narrow the corridor, cut the refi and bring deposit rates into negative territory, extend the corridor without cutting the refi rate); liquidity operations (relax collateral requirements, extend the maturity of exceptional LTRO); and/or support credit (E/I-TALF, credit easing through ABS purchases or through national central banks). They believe the ECB will remain cautious, as data has stabilized somewhat and the ECB continues to investigate measures to support bank lending. The strongest argument, they say, for a rate cut is the sell-off over the last month, so they would recommend long positions going into the ECB meeting.