Halister News

(Bloomberg) -- Investors are keen to hear more details on the ECB’s plans to buy corporate bonds, and any discussion about the limits to monetary policy, including the unintended side effects of negative rates.

• Draghi’s press conference at 2:30pm CET will be watched for any sign that the door to further rate cuts is still open and whether the bank is considering other policy options, including “helicopter” money
• NOTE: Draghi’s March opening remarks, Q&A here; accounts
• NOTE: EUR/USD levels to watch after ECB

DEPOSIT RATE CUTS

• The ECB Business Lending Survey on Tuesday showed QE and negative interest rates had a negative impact on bank profitability; this comes after Draghi said last month the ECB doesn’t want to take rates so low that it would hurt the banks
• Scotia analyst Frederic Pretet says this suggests the topic will be up for discussion again today, especially after criticism from German Finance Minister Wolfgang Schaeuble
• Any change in tone from Draghi that may indicate further rate cuts are possible will be a key focus

DETAILS OF CORPORATE-BOND BUYING PROGRAM

• The ECB plans to start buying IG non-financial corporate bonds toward the end of 2Q but so far has given little detail on the structure of the program
• Whether it will buy in primary and secondary market, whether purchases reflect the capital key, are based on the issuer or parent’s domicile and how IG is defined, all will affect the size of the pool of eligible assets
• Monthly buying could range between EU2b and EU6b depending on what bonds are eligible, analysts say

LIMITS OF MONETARY POLICY

• Policy makers from the G-20 to RBA and BOC chiefs and former BOE governor Mervyn King have been expressing concerns that monetary policy may be reaching the end of its usefulness and attention may need to shift to fiscal policy
• Governing Council member Ignazio Visco says ECB action is aimed at buying time for governments to act
• But while that is a view Draghi has repeatedly voiced, he may avoid any comments suggesting the ECB’s arsenal is looking bare

HELICOPTER MONEY

• Draghi is likely to be asked to clarify the GC’s view on the impact and the legality of helicopter money as speculation mounts that the BOJ and the ECB may consider such a move
• Deutsche Bank analysts say such a step could have a much greater impact than QE and that the ECB has legal leeway
• Visco says it can’t be ruled out, but fellow GC member Knot says helicopter money doesn’t fit with ECB’s mandate; BOE governor Mark Carney described such measures as a “compounding Ponzi scheme”

• EURO STRENGTH
• With euro-area inflation at zero y/y and inflation derivatives at new lows, the impact of the strengthening euro may also be debated
• But expectations are low that today’s announcements will weaken the currency significantly, with Citigroup and Fidelity arguing that currencies have been set aside as a policy tool

GREECE, PORTUGAL ELIGIBILITY

• Draghi will also likely be quizzed on Greece as talks with its creditors drag on and as any deal would likely open up the way for GGB eligibility for ECB QE
• He may also be asked whether Portuguese bonds would remain eligible for QE were DBRS to downgrade the country’s rating next week, after the ECB stopped buying Cypriot bonds this month