By Hans Bentzien
FRANKFURT (Dow Jones) – The European Central Bank (ECB) is likely their monetary policy loosen again on Thursday. To avoid a once significant lower inflationary pressures and clouded growth prospects and the presumable desire of ECB chief Mario Draghi, a disappointment as in December 2015 have comprehensive measures and a determined communication expect.
The ECB will publish the result of the Council meeting on Thursday at 13.45 known. 14:30, the press conference with ECB President Draghi starts. Economists expect a further reduction of the bank deposit rate by 10 basis points to minus 0.40 percent and higher by about 15 billion euros monthly volume of bond purchases (currently: EUR 60 billion). In addition, the staff projections for growth and inflation are expected to be reduced.
The communication of monetary policy decisions should be gradual. First comes at 13.45 via teleconference the Interest Rate Decision. This conference could end with the announcement that ECB President Draghi will announce further measures. This could be meant two things: an increase in the purchase volume, a system of graduated deposit rates or both.
The macroeconomic framework for the economy of the Euro Zone have since the ECB session not improved in January. The economic indicators have declined, inflation also. Compared with the end of November 2015 as the previous ECB staff projections were prepared for growth and inflation, the slowdown is even more pronounced. The euro has since trade-weighted revalued by 3 per cent, the oil price – economically a prop – by 15 percent yielded. That leaves the inflation target of the ECB of just under 2 percent move further into the distance.
Economists expect the ECB will reduce its inflation forecast for 2016 from 1.0 to around 0.5 percent. Also for the core rate lowering is expected. In addition, should show, first published in 2018 forecast that the ECB does not expect price stability to their definition, even within the next three years. All this argues for a monetary policy response.
In the financial markets, a reduction in the bank deposit rate by 10 basis points to minus 0.40 percent priced in for 10 March. For the remainder of the year two more cuts to minus 0.60 percent are expected. Some analysts expect the ECB cuts equal to 20 basis points, others that they will do three equal steps.
These forecasts are combined with the idea that the ECB is likely to strive to the adverse effects of a more negative deposit interest rate for the banks mitigate – for example through a system of graduated penalty interest. Some economists tap that smaller institutions are excluded with high deposits depending entirely on the interest rate. Others assume that the ECB is less punishing excess deposits, which result from its bond purchases.
Similar considerations exist for credit that would arise in the context of an expected new program for long-term tender. Still other analysts predict that the ECB will easily align such a tiered system at multiples of the minimum reserve requirements.
The monthly bond purchases by the Eurosystem are expected to expand by 10 to 20 billion euros to 70 to 80 billion euros forecasted, a Bank expects only temporary expansion. Even a temporal extension of the program for a further six months is considered possible.
Detailed deal commentators with the question of how the ECB will accomplish the necessary expansion of this well pools ankaufbarer securities. The ideas here range from the purchase of corporate bonds over unsecured bank bonds and stocks or ETFs to cancellation of return lower limit, which currently represents the bank deposit rate.
statements by ECB officials in recent weeks suggest that the ECB will introduce a tiered penalty rate system. Chance express observers but the assessment that the preparations continue for the graduation and will therefore come at a later date.
As a less likely applies an increase of the ceilings that prevent the ECB so far from acquiring more than 25 or 33 percent of a single bond issue, or more than 33 percent the outstanding bond debt of a State to possess. Also, another pro-rata allocation of the acquisitions, which currently is based on the ECB capital key of the countries is considered less likely.
Contact the author hans.bentzien@dowjones.com
DJG / hab / apo
(END) Dow Jones Newswires
March 09, 2016 23:55 ET (04:55 GMT)
Copyright (c) 2016 Dow Jones & amp; Company, Inc. – 11 55 PM EST 03-09-16
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