Halister News

(Bloomberg) -- ECB is likely to respond aggressively to the shock waves generated by U.K.’s Brexit referendum, Luigi Speranza, economist at BNP Paribas, says in client note.

• As a consequence of Brexit, BNP expects euro-zone GDP growth to slip; bank now forecasts region to grow 1.4% this year (vs 1.5% previously predicted) and 0.9% in 2017 (vs 1.3%)
• ECB may lengthen its asset-purchase program by at least 6 months; the announcement could come as early as the July meeting, or in September when the central bank will release its new economic projections
  • Extending QE will raise the issue of bond scarcity again
• Expects ECB to start action by increasing the issue limit on non-CAC bonds to 50% from 33%, a small technical change with little or no political cost and one that would increase the pool of available German bonds by around EU50b
  • ECB could announce this change as soon as next week
• Draghi also likely to leave the door open to further adjustments, including a potential change in the deposit- rate floor or even changes to the capital key
• Any deposit-rate cut likely to be ineffective, possibly even counterproductive, while a reduction in the refinancing rate is a possibility
• More radical action, such as equity purchases, are improbable as that would leave an impression of panic
• NOTE: ECB to next meet July 21