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Draghi Keeps Markets Guessing - TDS

FXStreet (Guatemala) - Analysts at TD Securities explained that the ECB left interest rates unchanged and failed to excite with a little changed introductory statement and non-committal answers in the Q&A on specific amounts of ABS and covered bonds that they plan to buy.

Key Quotes:

“Moreover, while they did expand their guidelines to allow them to buy debt rated below BBB-, which will allow them to buy Greek and Cypriot debt among others, they put caveats that Greece would need to remain in an IMF program and nudged expectations for the increase in the ECB’s balance sheet lower”.

“The guidelines for asset purchases published after the meeting also provided less details than hoped. They will buy guaranteed mezzanine ABS, but details will be communicated later”.

“So covered bond buying will begin mid-October, ABS buying will start some time before year-end, but there is no guarantee ABS buying will be full-steam by then if guarantees prove problematic’.

“The prepared remarks and non-ABS portions of the press conference provided little new, with a slight upgrade of the pressure on governments to deliver structural reforms as the ECB tries to shift the focus away from what else it can do”.

“Draghi also danced around the question on falling inflation expectations, after he rather specifically suggested 5y5y inflation forwards falling through 2% around the time of Jackson Hole was a particular line in the sand. That line is now a bit more fuzzy and is just part of the increased risks around inflation expectations”.

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