ECB Watch
Group Economics Macro & Financial Markets Research
10 March 2016
ECB delivers broad stimulus but may need to do more • Nick Kounis Head Macro & Financial Markets Research
corporate bonds and new cheaper TLTROs for banks •
Tel: +31 20 343 5616 nick.kounis@nl.abnamro.com
Tel: +31 20 343 5606
However, the positive market impulse faded as President Draghi cast doubt on further rate cuts and the adoption of tiered rate system
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Aline Schuiling Senior Economist
ECB delivered a broad package of rate cuts, increased QE including
Inflation is still seen undershooting the ECB’s goal in 2018 and it will also struggle to meet its new increased QE targets
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We think the ECB may well need to do more in the coming months
aline.schuiling@nl.abnamro.com
Hyung-Ja de Zeeuw
The ECB’s March package
Senior Credit Strategist
The ECB announced a stimulus package on Thursday in response to the significant
Tel: +31 20 628 3551
deterioration in the growth and inflation outlook. There were three broad sets of measures:
hyung-ja.de.zeeuw@nl.abnamro.com
Rate cuts: It cut its deposit rate by 10bp to -0.4% and its refi and marginal lending rates by 5bp to 0% and 0.25% respectively. QE: It increased its monthly purchases by EUR 20 bn taking them to EUR 80bn starting in April and expanded the eligible universe to include investment grade bonds of non-financial corporates established in the eurozone. This will be done under a new corporate sector purchase programme (CSPP), which will be launched towards the end of Q2. It also increased the purchase limit for supranational bonds to 50% from 33% of the universe. Bank funding: It introduced four new TLTROs (TLTRO II) each maturing in 4 years to be conducted from June 2016 to March 2017. Banks will be able to borrow 30% of their eligible loans (to non-financial corporations and households excluding mortgage loans) as of 31 January 2016 less the amount outstanding in TLTRO I. We estimate the total potential takeup at around EUR 1.25 trillion, but it will probably be less than that. Banks will be able to borrow the funds in principle at the refi rate. However, the rate on these loans could be as low as the deposit rate of -0.4% depending on the degree to which banks step up lending to the private sector. Banks will also be able to roll the old TLTROs into the new scheme to benefit from the lower cost.
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