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ECU to increase QE and decrease Interest rates...

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    ECU to increase QE and decrease Interest rates...

    From DTN Report:

    "Starting from the ECB's Oct. 22 meeting and in subsequent speeches, Draghi has indicated action is likely in December. Through its stimulus actions, ECB aims to make credit cheaper for companies to support growth, which is still weak at just 0.3 percent in the third quarter. Most of all, it is trying to push inflation higher from 0.1 percent toward its goal of just under 2 percent annually. Price stability is the bank's chief goal; low inflation suggests the economy is weak and makes it harder for indebted countries such as Greece to recover.

    To achieve that, the ECB is currently buying 60 billion euros in government and corporate bonds a month, up to a total of 1.1 trillion euros. And Draghi mentioned that the current rate on funds deposited by banks could be cut further. That rate is already negative at minus 0.2 percent.

    Here's what investors expect from the ECB — and where the central bank could surprise on Thursday:

    ___

    BIGGER BOND PURCHASES, FOR LONGER

    Right now, markets are expecting the ECB to either extend the bond-buying program beyond the current end date of September 2016 or increase the purchase amounts. It could also increase the list of eligible bonds beyond government bonds and limited types of very secure private-sector bonds.

    To exceed expectations, Draghi may have to do several of those, or all three, and/or exceed the amounts.

    Holger Schmieding, chief economist at Berenberg Bank in London, looks for the ECB to raise bond purchases to 75 billion a month; lengthen the minimum duration of the purchases by six months until March 2017; and add new types of bonds excluding corporate issues.

    "It would be a big surprise if the ECB fails to take further action in December," wrote Ben May at Oxford Economics in a research note. "The key issue is, how much will it do.In the past Draghi has often delivered more than anticipated. " May said that suggests a longer purchase program duration is likely — though he expects no increase in monthly purchases.

    ___

    LOWER INTEREST RATES

    Markets are already expecting a cut in the deposit rate by around 0.15 percentage point, says analyst Carsten Brzeski at ING-DiBa in Frankfurt. Analyst May foresees a 0.10 percent cut, "although a larger reduction is certainly possible."

    So to clearly exceed expectations, Draghi would need something like a cut of 0.20 percentage point, or more.

    Speculation about a deeper cut into negative territory has been fed by experience in Switzerland, Denmark and Sweden, which have negative rates and have seen fewer unintended consequences than some had feared. Switzerland has its key rate at negative 0.75 percent. That has supported the idea that the ECB might be able to go even deeper into negative territory than it has.

    A cut in the deposit rate has several effects that could help stimulate the economy. It would increase the amount of safe bonds available for the ECB to buy, since currently the central bank cannot purchase bonds yielding less than its deposit rate. It would push banks to lend money instead of hoarding it at the ECB.

    Perhaps most important of all, the negative deposit rate is seen as tied to the euro's exchange rate to the dollar. That is because the lower rates go in the eurozone, the less people want euros to buy fixed income investments. That lessens demand for euros — and sends its exchange rate lower. It helps exporters and helps the ECB raise inflation by making imports more expensive.

    And that's particularly so against the dollar, since the U.S. Federal Reserve is widely expected to make its first rate increase in years at a Dec. 15-16 meeting.

    (KA)"

    #2
    What is amazing is that these idiots still think this is going to help. These programs has done nothing but make problems worse and yet they keep on.

    Comment


      #3
      Agree ajl, QE stimulus has been a monumental mis-step by central bankers, but the game continues until the equity bubble implodes.
      Then what's the plan Mr. and Mrs. central banker?

      Brazil's economy is now in free fall with their GDP collapsing 4.5 per cent in the 3rd quarter.

      Canada's recession is also deepening which suggests a further Bank of Canada rate cut soon.

      And Janet Hellen's supposed rate hike on Dec 16th may go down in history as the biggest blunder of them all. U.S. recession risks have heightened heading into 2016 and now the Fed wants to tighten monetary policy.

      IMO, the Fed rate hike shannigans is a head fake. The birth of QE4 is more likely.

      Time for a bowl of popcorn and watch the fallout in-action . . . .

      Comment

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