At 7:45 a.m. ET on Thursday, the European Central Bank (ECB) will announce its latest decision on rates and monetary policy, with ECB president Mario Draghi taking press questions 45 minutes later.
Nobody is really expecting any more rate cuts: the marginal lending facility is at 0.3%, the main refinancing rate is at 0.05%, and the deposit rate is at -0.2%. Draghi has indicated that this is about as low as it’s going to get.
Since last month’s big ECB meeting, pretty much everything in the Eurozone is slightly worse. Business surveys are indicating slower growth, inflation is now down to 0.3%, and the latest effort to get banks lending disappointed pretty much everyone.
What we will definitely get on Thursday is the details of the asset-backed securities and covered bonds the ECB plans to buy. What exactly the ECB buys and how much of it will be important questions.
Marchel Alexandrovich of Jefferies says in a research note that an ECB announcement of €80-100 billion ($101-126 billion) purchases would be enough “to signal a serious commitment.” Societe Generale analysts are expecting an announcement of more like €130-150 billion ($164-189 billion).
The amount’s important, as we saw with the TLTRO (targeted long-term refinancing operations) announcement in September. The ECB has said it wants to boost its balance sheet back to about €3 trillion ($2.38 trillion), so anything seen as too low could be regarded as a failure.
But the composition is also important. According to the Financial Times, Draghi is aiming to buy up securities in some of the most hard-hit countries in the Eurozone. If the ECB doesn’t go for something like this, it could end up benefiting the core of the Eurozone most, the area that least needs stimulus, as Business Insider’s Tomas Hirst explains.
Aside from this, any suggestions that the ECB will pursue even further easing — ABS and covered bond markets are very small in comparison to the market for government debt, which the ECB could buy with a full QE programme. Calls for QE aren’t likely to end tomorrow.