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Asset purchase program can be tweaked in this week’s ECB meet – BBH

FXStreet (Delhi) – Research Team at BBH, suggest that in this week's ECB meeting, there are three broad ways that the asset purchase program can be tweaked.

Key Quotes

“1. An extension to the current program, which has a soft deadline of September 2016, can be announced. This seems to be among the favorite scenarios among investors. There is some talk about a six-month extension.”

“2. The amount of assets being bought can be increased. There is a certain logic to this. If the amount is increased, then there may not be a need to extend the duration of the buying. Increasing the duration of the program represents a longer commitment but not necessarily a more effective operation.”

“3. The composition of what is being purchased can be altered. The asset-backed purchases have not been particularly successful. A more aggressive program could include bank bonds or corporate bonds.”

“The ECB could also cut the negative deposit rate from its current minus 20 bp. Given that the current rules prohibit buying government bonds with a lower yield than the deposit rate, this would also increase the assets available to it. A more negative deposit rate may also have a greater immediate impact the euro, whose appreciation on a trade-weighted basis does no favors to the central bank's efforts to resist lowflation/deflation. It could also be a compromise between those who want to do more and those who are skeptical of the merits of QE in the first place.”

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