Forex Flash: ECB to add some colour on bond buying - Nomura
FXstreet.com (Barcelona) - Expect the ECB to announce its preparedness to intervene in the bond market after countries have called for help at the EFSF/ESM and under strict conditionality, Nomura Chief European Economist Jacques Cailloux said in a research note, published late last week.
However, Nomura believes that the ECB will provide very little colour on the modalities of the programme at this week's meeting.
According to Mr. Cailloux, once the program is implemented, "analysis shows that the bond buying programme for Spain could last 5 months with the shorter maturities rallying further in the initial stage of the policy response. Much more difficult will be how to anchor the longer end which will be the job of the EFSF/ESM, a task we believe will be very hard."
Mr. Cailloux adds: "We also expect the refi rate to be cut 25bp to 0.5% but the deposit rate to remain at 0%; an event to which we assign a 60% probability. - Calls for a rate cut will be justified by the ongoing deterioration in the growth outlook and in spite of slightly firmer inflation projections (due to the weaker euro and VAT increases in Italy/Spain). We look for the ECB staff to cut sharply again the GDP mid-points: 2012 by 0.3pp to -0.4% and 2013 by 0.5pp to 0.5%."
- Collateral framework to be loosened further, as already hinted at by Pdt Draghi and
potentially including a change on the haircuts applied to sovereign bonds
However, Nomura believes that the ECB will provide very little colour on the modalities of the programme at this week's meeting.
According to Mr. Cailloux, once the program is implemented, "analysis shows that the bond buying programme for Spain could last 5 months with the shorter maturities rallying further in the initial stage of the policy response. Much more difficult will be how to anchor the longer end which will be the job of the EFSF/ESM, a task we believe will be very hard."
Mr. Cailloux adds: "We also expect the refi rate to be cut 25bp to 0.5% but the deposit rate to remain at 0%; an event to which we assign a 60% probability. - Calls for a rate cut will be justified by the ongoing deterioration in the growth outlook and in spite of slightly firmer inflation projections (due to the weaker euro and VAT increases in Italy/Spain). We look for the ECB staff to cut sharply again the GDP mid-points: 2012 by 0.3pp to -0.4% and 2013 by 0.5pp to 0.5%."
- Collateral framework to be loosened further, as already hinted at by Pdt Draghi and
potentially including a change on the haircuts applied to sovereign bonds
Free Annual Reports
