March 12, 2020 / 1:53 PM / 19 days ago

Instant View: ECB holds rates but ramps up stimulus to counter virus impact

(Reuters) - The European Central Bank approved fresh stimulus measures on Thursday to help the ailing euro zone economy cope with the shock of the coronavirus pandemic but unexpectedly kept interest rates on hold, a decision that may dismay markets.

The euro weakened after the decision was announced, with the single currency falling to the day’s low as investors rushed for dollars.

The following are analyst comments on the ECB’s strategy:

BARNABY MARTIN, HEAD OF EUROPEAN CREDIT STRATEGY, BANK OF AMERICA

“She delivered what was the consensus. Markets that traded down pretty hard since then did so because clearly they wanted a lot more. But we always knew that the ECB was further up against the political constraints of what they could do than other central banks.”

“We already have negative rates so we can’t do a 50bp cut like the Fed and the BoE. We’ve already been doing QE for a number of years... so doubling, tripling, quadrupling it is tricky.”

MARCHEL ALEXANDROVICH, SENIOR EUROPEAN ECONOMIST, JEFFERIES

“An underwhelming package from the ECB.

“Better TLTRO terms, but no rate cut, and only 120 billion euros of extra quantitative easing to be added until the end of the year, although I am sure Lagarde will say this can be concentrated over the next few months and could be increased.”

ULRICH LEUCHTMANN, HEAD OF FX AND COMMODITY RESEARCH AT COMMERZBANK

“I think the measures are more targeted and more suited to the circumstances we currently facing. They are using more targeted measures now to address the situation and that is something that is maybe not good for the euro in the short run, but in the long run - once corona is over - it shows that the ECB is in the position to manage certain kind of risks.

“The main message for the FX markets - once this current panic in the markets is over - is that the ECB is not in position where they will panicky keep cutting cutting cutting to ever lower levels - they will use targeted measures instead.”

SEBASTIAN GALY, SENIOR MACRO STRATEGIST, NORDEA

“The fact that the ECB didn’t go for more negative interest rates tells you about the complete lack of coordination between the United States and the EU. More negative interest rates are likely seen as a devaluation by the U.S. at the time of heavy trade negotiations and a travel ban.”

CHRIS SCICLUNA, HEAD OF ECONOMIC RESEARCH, DAIWA CAPITAL MARKETS

“I think the market response is understandable given the decision not to cut rates or make an explicit statement on issuer levels on asset purchases.

“At the same time there are some positive elements such as increasing asset purchases, especially on corporate bonds which is helpful.”

“It’s also helpful that the interest rate on TLTROs can be as low as -0.75%, so there is significant easing but no change in the headline interest rates is not got for the euro and highlights the limited ammunition that the ECB has left.”

STEPHEN GALLO, EUROPEAN HEAD OF FX STRATEGY, BMO    CAPITAL MARKETS

“They tried to do shock and awe with the numbers — instead of saying per month they gave us the cumulative amount. We have to wait to see what they are buying.

I thought it was knife edge whether they would cut or not. I wouldn’t have been surprised if they had cut but in order to have a meaningful impact on the euro they would have to go more than 10 bps and that would not have been optically very good for them.”

Reporting by Carolyn Cohn, Dhara Ranasinghe, Karin Strohecker, Sujata Rao and Yoruk Bahceli; Editing by Toby Chopra

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