Halister News

(Bloomberg) -- ECB is hopeful that inflation will start to rise from the second half of the year, President Mario Draghi said after the bank left rates unchanged and announced no new measures

• ECB detailed what corporate bonds would be eligible for purchase from June and Vice President Vitor Constancio said the bank is in favor of changing the risk weighting for sovereign bonds held by banks, which is currently zero
• EUR/USD rose as high as 1.1398 during Draghi’s press conference as he signaled no new easing measures before erasing gains to trade as low as 1.1270 as oil prices dropped
• Limited reaction across European government bonds; peripheral spreads to core within recent ranges, Euribor strip unchanged from pre-ECB levels
• NOTE: Draghi’s opening remarks here; link to corporate bond buying program details

CORPORATE-BOND BUYING PROGRAM

• Purchases will start in June and will be in primary and secondary markets
• Insurers will be eligible; issuer must be a corporation established in the euro area
• Issue limit is up to 70% per bond, maturity from 6 months to 30 years; a benchmark will be defined at an issuer group level
• Instruments can be purchased if they are eligible as collateral for the Eurosystem, are euro denominated, have at least one rating of BBB- or above
• If the parent is a bank or an asset manager, an entity’s bonds aren’t eligible; a company that owns a bank but isn’t a bank itself is
• Will publish holdings on a weekly and monthly basis; will be available for repo; won’t publish details on size ahead of the purchases

LIMITS OF MONETARY POLICY

• QE purchases are intended to run until the end of March 2017 or beyond if necessary
• In order to reap the full benefits from ECB monetary policy measures, other policy areas must contribute much more decisively
• “Actions to raise productivity and to improve the business environment” are vital to increase investment and boost job creation
• If there were also structural reforms, the effect of these policies would be quicker; fiscal policies should support growth while complying with rule
• March measures helped prevent second-round effects from market turbulence since beginning of the year; policies are necessary for return of inflation to target of close to 2%

HELICOPTER MONEY

• Interesting concept, but ECB hasn’t studied it, never discussed it
• Such a policy is fraught with operational difficulties
• Clearly involves complexities both from an accounting and legal perspective

• ZERO RISK WEIGHTING
  • ECB Vice President Vitor Constancio said there’s reason to change system of risk weights but that any revision shouldn’t create new turbulence in market where sovereign debt is used
  • Risk-weight regime should be decided in international context to ensure a level playing field
• ECB will publish a report on this, Draghi said
• NOTE: Goldman says policymakers could look at a number of alternatives to the current zero risk-weighting

DEPOSIT RATE CUTS

• Continue to expect rates to remain at present or lower levels for extended period of time
• Pretty evident that pension funds are significantly affected by the low level of interest rates

• INFLATION
  • Consumer prices could turn negative in months ahead; will pick up in 2H 2016
  • Should recover further in 2017, 2018
  • The future path of inflation is going to be supported by the ECB’s monetary policy measures, by the recovery, and by base effects
• Says the correlation between inflation expectations and oil prices has decreased

• BREXIT
  • Certainly the discussion about the possibility of a Brexit has already produced significant consequences on the market
  • Expect continuation of volatility, certainly until the referendum
• Risk of any Brexit to a recovery in euro area is limited