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Lee Sue Ann, Economist at UOB Group, reviewed the latest ECB event and its prospects of extra easing in December.

Key Quotes

“Whilst further monetary policy easing by the ECB has been largely priced in by financial markets, Lagarde nonetheless surprised on the dovish side, on the strength and the scope of the signalled easing. She essentially not only pre-committed to easing in December (Governing Council is in unanimous agreement that more needs to be done at the next meeting); but also clarified that the ECB is looking at all instruments. This implies that all options remain on the table, including an expansion of pre-existing asset purchase programs, an expansion of the Pandemic Emergency Purchase Program (PEPP), and even possible interest rate cuts.”

We continue to believe the bar for further cuts in policy rates remain high. The ECB is likely to extend and increase the Pandemic Emergency Purchase Programme (PEPP) in December. At present, only EUR616.9 billion of the EUR1.35 trillion potential size of the PEPP is being utilized and spread across Eurozone members. Hence, the implementation period could stretch an extra six months beyond the current guidance that purchases will be made until at least June 2021 with reinvestment “at least” to the end of 2022”. We also expect the ECB to include further easing of the TLTROs or similar cheap liquidity providing operations.”