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ECB could tweak the terms for December TLTRO - TD Securities

FXStreet (Łódź) - Annette Beacher, Head of Asia-Pacific Research at TD Securities believes that during today's monetary policy meeting ECB could adjust the terms of the December TLTRO program, to bolster expectations that the balance sheet will get a boost.

Key quotes

"This could be done by reducing the 10bps spread to the refi rate in order to bring the overall cost of funds to only 5bps for 4y funding, or by increasing allotments to provide scope for banks to borrow more, or by ensuring all the funding is provided for 4y, rather than all the quarterly tenders being fixed to a September 2018 maturity."

"These are all possible but we do not see them as a make or break issue for the market and are inclined the think the ECB risks disappointing the markets by failing to tweak an existing facility."

"The ECB is committed to increasing the balance sheet by at least €700bn over the next two years but knows that it will have a hard time actually increasing the balance sheet significantly until after next February, once the ABS and covering bond buying is in full swing and the maturing 3y LTROs are out of the way."

"So we look for Draghi to reinforce that the ECB is acting, that ABS buying is ready a month earlier than expected, and that if it feels the need to expand the programs further, it will do so in the future, but not now."

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