Halister News

(Bloomberg) -- Expect 20bps deposit-rate cut in March, accompanied by tiering to create more room to reduce rate while allaying concerns over impact on banking sector, Ken Wattret, economist at BNP Paribas, writes in client note.

• Previously expected ECB to cut deposit rate by 10bps
• Downside risks to growth and CPI point to a more substantial, broader-based package of measures
• Currency strength, tighter financial and monetary conditions, are all factors which play in favor of a bigger- than-10bps deposit rate cut
• An announcement of tiering is likely already in March as would alleviate concerns about the impact on banks and provide more room to cut rates further
• If not announced in March, ECB will probably signal that tiering is on the way
• Still expect the monthly run-rate of asset purchases to rise by EU10b, accompanied by further extension of reference date to Sept. 2017
  • It could be larger, but probably not by much, given scarcity issues
• Expect ECB to announce longer-term liquidity provision to banks on more favorable terms compared with TLTROs
• Among measures which are unlikely to be announced, BNP cites purchase packages of loans, bank debt