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2 Jan 2015
To be effective, QE would probably have to be EUR500-750bn – ANZ
FXStreet (Barcelona) - Brian Martin of ANZ, explains the size of the QE will probably have to be around EUR500-750bn to offset the repayment of earlier LTROs.
Key Quotes
“The size of the QE addition will therefore be critical. The ECB’s balance sheet will be under pressure early this year from the repayment of earlier LTROs. In order to offset this repayment and add to the assets held by the ECB, sovereign bond purchases would probably have to amount to EUR500bn at a minimum.”
“Our guess is that the market may want to see a programme size of around EUR500-750bn, otherwise it may be disappointed. It could also be effective if the ECB did not give a specific target. An advantage of this approach would be to leave open the upside for purchases and avoid possible disappointment by announcing a specific target.”
“The expectation of QE has been unsupportive for the euro against the USD and has added to the decline in the currency since the introduction of the negative deposit rate. The combination of ECB policy settings, Greek political uncertainty, a fragile recovery and the contrast with the US all point to a lower EUR/USD for now.”
“Much of this is priced in and in trying to anticipate the possible extent of further euro depreciation, it is worth remembering that inflation and inflation expectations lie at the crux of ECB policy initiatives today.”
Key Quotes
“The size of the QE addition will therefore be critical. The ECB’s balance sheet will be under pressure early this year from the repayment of earlier LTROs. In order to offset this repayment and add to the assets held by the ECB, sovereign bond purchases would probably have to amount to EUR500bn at a minimum.”
“Our guess is that the market may want to see a programme size of around EUR500-750bn, otherwise it may be disappointed. It could also be effective if the ECB did not give a specific target. An advantage of this approach would be to leave open the upside for purchases and avoid possible disappointment by announcing a specific target.”
“The expectation of QE has been unsupportive for the euro against the USD and has added to the decline in the currency since the introduction of the negative deposit rate. The combination of ECB policy settings, Greek political uncertainty, a fragile recovery and the contrast with the US all point to a lower EUR/USD for now.”
“Much of this is priced in and in trying to anticipate the possible extent of further euro depreciation, it is worth remembering that inflation and inflation expectations lie at the crux of ECB policy initiatives today.”