ECB to relaunch QE – ABN AMRO

Nick Kounis, head of financial markets research, suggests that the ECB will react to a more prolonged economic slowdown by relaunching QE.

Key Quotes

“Concerns about low inflation and low inflation expectations were already building even under the ECB’s more optimistic scenario, while ongoing sub-trend growth will make it more likely that inflation will significantly under-shoot the price stability goal over the central bank’s policy-making horizon.”

“An announcement of APP-II is likely by the end of the year, with actual purchases starting in January 2020 (though it could be launched early). We assume 9 months at EUR 70bn a month and a total size of EUR 630bn.”

“We are still looking at the details of the composition of the purchases, though we think once again there will be purchases of public sector, corporate and covered bonds. The issue(r) limit for sovereign bonds will need to be raised, while the proportion of corporate bonds in the total APP could be larger than in the past. A small rate cut (-10bp) is possible but for now we assume that interest rates will remain on hold at current levels during our forecasting horizon.”

“We do not expect the euro to strengthen this year (which would be a trigger for a rate cut), while the ECB might be concerned that  a rate cut could put pressure on bank margins over time.”