Macroview Further policy stimulus and adjustments to its bond-buying programme remain on the agenda as the ECB strives to measure the impact of current uncertainties The ECB remained on hold at its 21 July policy meeting. The main conclusion to be drawn from the meeting was that more stimulus is on the table for September, when new staff forecasts will be available.The only unexpected bit of news was ECB chairman’s Mario Draghi’s apparent support for the idea of a public backstop for banks under exceptional circumstances in order to avoid ‘fire sales’. In the post-meeting press conference, Draghi mentioned previous estimates that Brexit would cost the euro area about -0.2% to -0.5% of GDP over three years, but he also insisted that such estimates were highly dependent on how long current uncertainties prevail. Draghi emphasised that the updated staff projections for euro area growth in 2016-2018 that are due in September will provide a better starting point for the ECB to measure the risk to the economic outlook and to calibrate its monetary policy accordingly.Our baseline forecast is that the ECB will extend its asset purchase programme by at least six months, to September 2017, and that the central bank will make some changes to the programme's parameters, most likely including an increase in issue size and issuer limits.
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Frederik Ducrozet and Nadia Gharbi considers the following as important: ECB asset purchase programme, ECB policy meeting, ECB staff forecasts, Macroview
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Further policy stimulus and adjustments to its bond-buying programme remain on the agenda as the ECB strives to measure the impact of current uncertainties
The ECB remained on hold at its 21 July policy meeting. The main conclusion to be drawn from the meeting was that more stimulus is on the table for September, when new staff forecasts will be available.
The only unexpected bit of news was ECB chairman’s Mario Draghi’s apparent support for the idea of a public backstop for banks under exceptional circumstances in order to avoid ‘fire sales’. In the post-meeting press conference, Draghi mentioned previous estimates that Brexit would cost the euro area about -0.2% to -0.5% of GDP over three years, but he also insisted that such estimates were highly dependent on how long current uncertainties prevail. Draghi emphasised that the updated staff projections for euro area growth in 2016-2018 that are due in September will provide a better starting point for the ECB to measure the risk to the economic outlook and to calibrate its monetary policy accordingly.
Our baseline forecast is that the ECB will extend its asset purchase programme by at least six months, to September 2017, and that the central bank will make some changes to the programme's parameters, most likely including an increase in issue size and issuer limits. The ECB could also possibly take some more radical steps such as some limited deviation from capital keys. A drop in the rule that prevents purchases below the deposit rate (currently at -0.4%), an extension of the universe of asset purchases and an enlargement of the maturity spectrum are further areas the central bank might look at to improve policy transmission.
An important question for the ECB will be whether to extend its asset-purchase programme when the staff forecasts for 2016-2018 are released in September or to wait until December when the first forecasts for 2019 become available.