Macro Weekly
Group Economics
4 March 2016
The ECB’s March package • Nick Kounis Head Macro & Financial Markets Research
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Tel: +31 20 343 5616 nick.kounis@nl.abnamro.com
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We preview the ECB’s meeting next week, which will very likely deliver monetary stimulus, but there is uncertainty about exactly what it will do Our base case is a 20bp deposit rate cut coupled by steps to cushion the impact on banks such as a tiered rate system… …and a new long-term loan facility for banks We also expect an increase and extension of QE, which should be facilitated by removing the deposit rate floor for purchases We think further monetary stimulus is justified and will have a positive effect, though the ECB needs support from other policymakers
Once again all eyes are on the ECB Next week’s ECB meeting promises to be another big even in the economic and financial market calendar. The ECB is almost certain to act, but there is uncertainty about exactly what it will do. At the same time there is increasing scepticism about the impact of monetary policy. Some argue it is ineffective at best and harmful at worst, leading to worries that we have reached a limit to what central banks can do to tackle the increased downside risks to the outlook for growth and inflation. In this preview, we ask five big ECB questions. Box: The ECB’s March Package We expect the following measures: •
A 20bp deposit rate cut to -0.5%
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Introduction of a tiered deposit rate system
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A new long-term loan facility for banks
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A EUR 10bn increase in monthly asset purchases
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Increase in duration of asset purchases to June 2017
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Removal of the deposit rate floor for asset purchases
What will the ECB do? We think the ECB will announce a broad package of measures next week including rate cuts, measures to support the banking system and an increase in asset purchases (see box above). Over the last year or two, the ECB has generally introduced policies on a number of fronts in an attempt to magnify the impact on financial conditions and the economy, as well as to create a ‘big statement’ on
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