According to National Bank of Canada analysts, the European Central Bank (ECB) will cut the deposit rate by 20 basis points and they see a new round of asset purchases.
Key Quotes:
“Given the precariousness of the situation, we expect the central bank to act forcefully when it comes to policy rates. A 20-basis point cut in the deposit rate sounds appropriate to us at this point. But expect many commentators to raise valid questions about whether the downside effects of lower rates are now outweighing their benefits.”
“We think Mario Draghi and other more dovish officials will win the day when it comes to QE. The ECB has already gone too far in signalling that a new round of asset purchases was on the way. Changing direction now would deal a blow to the Bank’s credibility and risk destabilizing markets. The size of the package is likely to be limited though; anything more than €40 billion a month looks improbable. Yet, to achieve that pace of bondbuying for more than a few months, the ECB would still need to rewrite its own rules.”
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