4 Feb 2014
Flash: ECB to hold – TD Securities
FXStreet (Guatemala) - Strategists at TD Securities expect ECB to hold.
Key Quotes:
“ So going into Thursday’s ECB decision, we expect the refi rate and the deposit rate to remain unchanged, but given the lack of denials of the recent news reports, the odds seem to be tilted toward the ECB following through and announcing the end of sterilization of the SMP”.
“Draghi is likely to still suggest that the ECB’s broader forecasts are on track for now, but that the ECB stands ready to act, and if volatility in eonia persists then it has ample scope to make further adjustments (whether via the refi rate or reserve requirements). We would also caution against overtrading ECB actions, as markets have been prone to overdo the reaction to easing moves, and are likely to overshoot again”.
“We do not believe that the SMP change is a precursor to a rate cut in March, but markets are likely to trade that way. We continue to believe that with stronger growth prospects and signs in the latest quarterly ECB survey that lending may finally begin to turn higher, the ECB will be patient in waiting for inflation to follow along too, and would prefer to lean against any over-cooked rate cut pricing”.
“Given the lack of tools that the ECB has left to combat a case of mild disinflation (while a negative deposit rate or outright asset purchases would be options for outright deflation risks), its best option at this point remains a program of smoke and mirrors”.
Key Quotes:
“ So going into Thursday’s ECB decision, we expect the refi rate and the deposit rate to remain unchanged, but given the lack of denials of the recent news reports, the odds seem to be tilted toward the ECB following through and announcing the end of sterilization of the SMP”.
“Draghi is likely to still suggest that the ECB’s broader forecasts are on track for now, but that the ECB stands ready to act, and if volatility in eonia persists then it has ample scope to make further adjustments (whether via the refi rate or reserve requirements). We would also caution against overtrading ECB actions, as markets have been prone to overdo the reaction to easing moves, and are likely to overshoot again”.
“We do not believe that the SMP change is a precursor to a rate cut in March, but markets are likely to trade that way. We continue to believe that with stronger growth prospects and signs in the latest quarterly ECB survey that lending may finally begin to turn higher, the ECB will be patient in waiting for inflation to follow along too, and would prefer to lean against any over-cooked rate cut pricing”.
“Given the lack of tools that the ECB has left to combat a case of mild disinflation (while a negative deposit rate or outright asset purchases would be options for outright deflation risks), its best option at this point remains a program of smoke and mirrors”.