The Strategist

Analysts: new ECB measures may not live up to expectations

09/11/2019 - 03:18

Investors expecting an aggressive stimulus package from the European Central Bank on Thursday are about to be disappointed, analysts said.

Forecasts of a significant easing of monetary policy, including lower interest rates and the resumption of the bond purchase program, are based on the latest data indicating a slowdown in economic growth and weak inflation in the Eurozone.

"There is a clear danger that markets that consider quotes as more aggressive stimulus than our basic forecast suggests will be disappointed," said Oxford Economics chief economist Oliver Rakau.

The ECB is expected to lower the deposit rate, which now stands at -0.40%, by at least 10, and possibly 20 basis points, while introducing a differentiation system that mitigates the negative effect of lowering negative rates on commercial bank profits.

Most market analysts expect the ECB to announce a new quantitative easing program with a monthly budget of between € 20 billion and € 60 billion, assuming that the actual launch of the program will be scheduled for a later date.

Societe Generale expects the ECB to announce launch of an unlimited-time quantitative easing program with a budget of €40 billion per month, as well as a deposit rate lower by 20 basis points with the introduction of a differentiation system.

Nomura economists predict that the ECB will resume the net asset purchase program, but doubt generosity of the appropriations for this program. LBBW analyst Elmar Völker expects the ECB managers to have a “sharp” debate, the results of which “will depend on the new growth and inflation forecasts prepared by ECB economists.”