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8 Aug 2014
A bigger ECB’s balance sheet would include domestic assets - Rabobank
FXStreet (Edinburgh) - A potential expansion of the ECB’s balance sheet would include domestic assets rather than foreign ones, assessed Elwin de Groot and Bas van Geffen, Analysts at Rabobank.
Key Quotes
“Since the onset of the Global Financial Crisis, the ECB has always chosen policy initiatives that are geared towards the specific situation at hand”.
“In 2011/2012 the ECB averted a liquidity crisis in the European banking system with the introduction of its 3-year LTRO”.
“In 2012 its OMT program announcement aimed to halt and reverse euro area fragmentation and unjustifiable sovereign spread levels”.
“Its latest set of measures, in particular the TLTROs, are again an example of ‘targeted’ measures that address specific impediments in the supply of credit, whilst its forward guidance, in combination with the negative deposit rate regime, aims to put downward pressure on interest rates and the euro”.
“Of course this does not preclude the possibility that the ECB will at some point have to engage in operations that entail a significant expansion of its balance sheet in order to stop a negative spiral between credit supply, growth, inflation and inflation expectations”.
“In our view, however, the ECB is much more likely to purchase domestic assets rather than foreign assets (regardless of the issues surrounding such purchases), should it ever come to that”.
Key Quotes
“Since the onset of the Global Financial Crisis, the ECB has always chosen policy initiatives that are geared towards the specific situation at hand”.
“In 2011/2012 the ECB averted a liquidity crisis in the European banking system with the introduction of its 3-year LTRO”.
“In 2012 its OMT program announcement aimed to halt and reverse euro area fragmentation and unjustifiable sovereign spread levels”.
“Its latest set of measures, in particular the TLTROs, are again an example of ‘targeted’ measures that address specific impediments in the supply of credit, whilst its forward guidance, in combination with the negative deposit rate regime, aims to put downward pressure on interest rates and the euro”.
“Of course this does not preclude the possibility that the ECB will at some point have to engage in operations that entail a significant expansion of its balance sheet in order to stop a negative spiral between credit supply, growth, inflation and inflation expectations”.
“In our view, however, the ECB is much more likely to purchase domestic assets rather than foreign assets (regardless of the issues surrounding such purchases), should it ever come to that”.