ECB buying time before deciding on additional stimulus - Lloyds

As expected the European Central Bank left interest rate unchanged today. Analysts from Lloyds Bank say that the central bank is buying time before deciding on whether additional stimulus will be added.

Key Quotes:

“Markets were watching closely the press conference with President Draghi for hints of further stimulus measures in the months ahead, possibly as soon as the next meeting on 8 September. In the event, Mr Draghi gave a very balanced performance, making no promises of further stimulus on the one hand, but also indicating that it has the willingness and ability to do more if required.”

“Overall, the ECB is buying time before deciding on whether additional stimulus will be added. Even without further stimulus in the coming months, it may still be necessary to tweak current rules on the asset purchase programme, given the potential looming shortage of German paper.”

“On balance, the ECB at the next meeting seems likely to extend the end date of asset purchases by a further six months to September 2017. Announcements of how to tweak the rules to increase the universe of German bonds eligible for purchase may also be made later in the year – this includes a possible removal of the deposit rate floor or raising issue limits. A further cut in the deposit rate is also possible, but our base case is for it to remain at ‑0.4%. More controversially, the ECB may consider changes to the capital key to reduce the proportion of German bonds that it buys.”