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4 Apr 2014
ECB; if inflation at 0.5% wasn’t enough...? - RBS
FXStreet (Guatemala) - Strategists at RBS explained that President Draghi highlighted another argument for doing more now on monetary policy – to avoid lasting damage to the supply side – but it is not clear that this mechanism is influencing policy when rates have been left on hold at the current juncture.
Key Quotes:
“President Draghi's comments suggested a well capitalised banking system is a key ingredient in the transmission mechanism of a successful programme and a preference for the ABS model – both of which suggest ECB QE might arrive later than expected”.
“In terms of other instruments – we were not surprised to hear that terminating the SMP drain is still on the table, and President Draghi damned unconditional and conditional LTROs with faint praise”.
“The Council has an easing bias, which it has sought to strengthen with the promise to act swiftly if required. If that bias was not activated by headline inflation at 0.5%, one wonders what will be required to trigger action when inflation is around 1%”.
Key Quotes:
“President Draghi's comments suggested a well capitalised banking system is a key ingredient in the transmission mechanism of a successful programme and a preference for the ABS model – both of which suggest ECB QE might arrive later than expected”.
“In terms of other instruments – we were not surprised to hear that terminating the SMP drain is still on the table, and President Draghi damned unconditional and conditional LTROs with faint praise”.
“The Council has an easing bias, which it has sought to strengthen with the promise to act swiftly if required. If that bias was not activated by headline inflation at 0.5%, one wonders what will be required to trigger action when inflation is around 1%”.