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ECB running out of “ammo” - BAML

FXStreet (Guatemala) - Mark Capleton, Rates Strategist at Bank of America Merrill Lynch explained the last - many would say only - as yet untouched "bazooka" at the ECB's disposal is seen as sovereign bond QE.

Key Quotes:

“However, given its political obstacles, it may at least be worth considering another differently radical option - Temporary Index Level Targeting (TILT)."

"Under such a policy, the ECB would commit to tolerating a future 2% inflation target overshoot until it forecasts any period of inflation undershooting to have been reversed. Now this is certainly a low probability outcome but it does have the advantage that it requires no action. It is verbal intervention - hard guidance."

"We mention it as a tail risk because it would serve to undermine bearish positions in longer term forward EUR rates in a dramatic way”.

“It would also lead to a big change in the relative appeal of short-term deflation protection versus long-term deflation protection in the inflation options market, enhancing the case for trades that look attractive to us anyway."

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