Halister News

(Bloomberg) -- BNP sees ECB extending QE beyond current end-date of March 2017 based on Draghi’s Sept. 8 press conference comments; prospect of slowing growth, “stubbornly low” inflation makes case for additional easing “pretty compelling,” BNP economists Luigi Speranza and Stefan Ubovic say in note.

• Though QE seen to have diminishing marginal returns, “we are far from a situation in which the policy is proving counterproductive”
  • Sees 6 mo. extension through September 2017, possibly further to December 2017, which would “conveniently” extend beyond German elections, thereby avoiding potential need for extension ahead of vote
  • Calls for increased issue limit for non-collective- action-clause (non-CAC) bonds, removal of deposit-rate floor in any case of extension
• “Highly unlikely” deposit rate cut would be seen as “ineffective, and maybe counterproductive”
• Calls for inflation in excess of 2% would boost expectations, may create “potentially dangerous precedent” should ECB fail to hit target
• Yield control option more difficult for ECB than BOJ as the former buys bonds of 19 different countries, would have to set more than one target
• Stronger commitment to reinvesting capital likely to be opposed by conservative ECB members
• May widen scope of QE to include other assets like bank bonds, equities, possibly via ETFs; bank bonds would give ECB “more flexibility” by increasing pool of assets available for purchase