ECB to announce a six-month extension of its QE programme – Danske Bank

Today, all focus will be on the long-awaited ECB meeting and Research Team at Danske Bank expects the ECB to announce a six-month extension of its QE programme and maintain monthly purchases at EUR80bn.

Key Quotes

“This is probably close to market expectations given a recent Bloomberg survey, where 64% of analysts expected a QE extension with the current pace kept unchanged.”

“The reason why ECB is widely expected to extend the purchases is that inflation is still not on a sustained path towards 2% despite the latest increase, which is due to energy price inflation (core inflation has remained constant since August).”

“The market focus has over the past couple of months been focused on the risk of 'tapering' or 'end of easing'. However, in our view, that is premature and we do not expect the ECB to announce any kind of tapering at this meeting.”

“Instead, focus is likely to be on potential changes to QE buying restrictions like the issuer limit, buying below the deposit floor at -0.40% or potential deviations to the capital key. Note that we do not in fact expect any of these changes to take place. Finally, the fixed income market will scrutinise if we see any changes to the securities lending programme (repo facilities) by the Bundesbank given the 'expensive bunds' in the repo market.”