HALISTER1: ECB Would Find It Difficult to Emulate BOJ Policy Shift: BofAML

ECB Would Find It Difficult to Emulate BOJ Policy Shift: BofAML

(Bloomberg) -- ECB emulating the new policies the BOJ announced this morning faces at least four obstacles, BofAML analysts Gilles Moec and Ruben Segura-Cayuela write in client note.
  • A credible commitment to continue QE until inflation hits 2% would be a better option, in any case
  • Any shift to price targeting in the ECB’s QE program would be difficult to communicate; central bank purchases would become a function of bond supply determined by national fiscal policy, QE purchases reflecting the capital key could get very challenging and determining the “right” level of 10Y yields in region with 19 members is complicated
  • Legal aspects from the German constitutional court ruling on the OMT may further complicate such a change
  • And a steeper curve need not help inflation reach the ECB’s target; in fact a steeper long end of the curve without a significant move in inflation expectations could lead to weaker growth and long-term inflation
  • NOTE: The BOJ’s policy shift to “QQE with yield curve control” will be important for European markets as it re- frames the policy discussions around upcoming ECB meetings, RBC says
Alert: HALISTER1
Source: BFW (Bloomberg First Word)

Tickers
2539Z GR (European Central Bank)

People
Gilles Moec (Merrill Lynch International)
Ruben Segura-Cayuela (Merrill Lynch International)

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