Purchases of asset securities next action by ECB – BNP Paribas

FXStreet (Bali) – According to Clemente De Lucia, Economist at BNP Paribas, purchases of asset securities will be the next action to be taken by the ECB, suggesting that we have probably seen a bottom on how low interest rates will go.

Key Quotes

“In July the ECB did not embark in other policy actions after delivering a package of measures just one month ago. The ECB monetary policy stance remained unchanged and it is unlikely to change for a while unless a drastic deterioration of the economic outlook occurs. Several quarters are needed for assessing clearly the effects of the June’s package on the economy.”

“What kind of actions could be decided if needed? Key policy rates have probably reached their lower bounds, as reaffirmed today by president Draghi. Therefore, purchases of asset securities will be the next action.”

“The first move would be to implement an Asset Backed Security (ABS) purchase scheme, something on which the ECB is already working. Mr Draghi played down some critics regarding a potential intervention in ABS markets.”

“Their small size might reduce the effectiveness of any ECB action. Yet, according to Mr Draghi, the size of ABS markets are endogenous. Therefore the presence of a strong buyer (the ECB) might revitalize the market.”
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