Nordea Markets analysts note that the ECB tried to address the quickly weakened economic outlook with strengthened forward guidance and a new a new round of targeted longer-term refinancing operations (TLTROs) in March.
Key Quotes
“Based on what we know so far, we do not find the terms of the new TLTROs particularly attractive and think the new operations will only act as a brake to the fall in excess liquidity, not prevent it.”
“The recent manufacturing PMI data points were awful and clearly put risks to the downside even for the ECB’s downward-revised growth forecasts for this year. The primary means for the ECB to tackle a weaker outlook are making the terms of the TLTROs more attractive (primarily via a sweetener regarding the lending rate) and adjusting its forward guidance even further (e.g. until the end of March 2020 or even until summer 2020). Both steps are possible at the June meeting, but we do not think the ECB will go into any panic mode at this point.”
“We postponed our call for the first ECB rate hike to June 2020 and see downside/postponement risks even to this scenario. The call is reliant on our expectation that the Euro-area growth will see a rebound in the second half of the year. If such a rebound does not materialize or will be delayed, the ECB may not raise rates in 2020 either.”
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