The ECB finally delivered – Danske Bank

FXStreet (Edinburgh) - Pernille Nielsen, Senior Analyst at the Nordic Danske Bank, evaluated yesterday’s announcements by the ECB.

Key Quotes

“Overall, the measures should support the easing in June, when the ECB introduced a negative deposit rate and announced it would boost liquidity through TLTRO loans”.

“At the same time, the ABS purchases will strengthen the effectiveness of the TLTROs as it removes loans from the banks’ balance sheet and hence increases the banks’ lending capacity to the real economy due to capital requirements”.

“So far, the size of the ABS and covered bonds purchases is unknown and, according to Mario Draghi, it is difficult to assess the size of the ABS programme as it will include new and existing ABS”.

“Draghi stated that the ECB has now reached the lower bound on policy rates”.

“The ECB is still unanimous in using unconventional measures should it become necessary to further address risks on inflation”.

“The decisions taken by the ECB should underpin anchoring of inflation expectations”.

“The ECB still sees expectations as anchored, but it has seen downside risks to inflation increasing and due to that it eased again”.

“The market reaction to the rate cut was pronounced as it was not expected with any greater conviction”.

“It is noteworthy to see the steepening in the EUR swap curve from the long end as a sign of the market believing the ECB measures will lift growth and inflation expectations.