ECB: The 'lower for longer' - ING

With a strong cyclical upswing underway and an increasing scarcity of bonds to buy, the ECB looks set to finally embark on its long-awaited tapering programme, suggests the analysis team at ING.

Key Quotes

“The question is how? ECB officials appear unanimous on the need to taper, but there are diverging views on how it should reduce the monthly purchases. We think the ECB will first identify a targeted, final, size of the balance sheet before it derives paths towards it. The latest press reports suggest the increase of the balance sheet could be between 200bn and 300bn euros. So, how will the ECB spend it?” 

“Well, we think there are three options, but we think the most likely is a 'lower for longer' scenario, where the ECB reduces monthly purchases to 25bn euros and extends the programme to the end of 2018. That looks set to be announced this month which, together with a clear reminder that the first rate hike won't come until well after the end of QE, should help anchor interest rate expectations and immunise against further exchange rate fluctuations.”