ECB: Calibrate good times - ING

Analysts at ING explain that there were few key takeaways from the latest ECB meeting which includes that the ECB will decide on the “calibration of policy instruments beyond the end of the year” this autumn.

Key Quotes

“The “bulk of the decisions” will be taken at the next meeting on October 26. Some (technical) decisions – such as changes to the parameters of the APP – may thus not be communicated until December, if changes are made at all.”

“Although President Draghi qualified the discussions the Governing Council had on the pros and cons of various QE scenarios for 2018 as “very preliminary”, he explicitly mentioned that an increase in issuer/issue share limits and an expansion of asset classes hadn’t been discussed. This even more suggests that the “calibration” of policy will entail a “tapering” of bond purchases. Indeed, while a further extension of the maturity range of purchases, currently 1-31yr, would give the Bundesbank an additional 4-5 months before bond-buying limits in Germany are hit (at a purchase pace of €30bn from January) this is unlikely to be enough to credibly convince markets that QE could be increased again in size and/or duration if needed.”

“Draghi several times reiterated that policy rates are expected “to remain at present levels” well past the horizon of the net asset purchases and stressed that the “sequencing” hadn’t been discussed. This suggests that forward guidance on rates remains the preferred tool to avert a taper tantrum and keep the EUR in check.”