The ECB chairman, Mario Draghi, could still have a few surprises up his sleeve at the bank’s eagerly awaited board meeting on Thursday. He has already acknowledged that low inflation expectations, largely due to very cheap oil and concerns over banking sector difficulties, could undermine monetary policy efficiency. …..
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Von Guillaume Rigeade, Fund Manager – Asset Allocation and Sovereign Debt di Edmond de Rothschild Asset Management
As a result, the ECB could prove particularly imaginative at the meeting and unveil fresh measures like (i) a massive drop in benchmark rates and (ii) targeted support for banks so as to prevent new interest rate cuts eating further into the sector’s profitability.
An easing in the lending conditions that benefit the real economy is facilitated by lower government bond rates across all maturities. Borrowing has already become much cheaper for companies and individuals but the ECB will certainly want to extend and speed up this process. We can therefore expect it to boost its bond-buying programme whether by extending its duration, increasing monthly purchases or widening its investment scope: in fact, it will probably use all these levers at the same time.
A decision to go for increasingly accommodating monetary policy will keep European interest rates low and thus reduce the risk of peripheral sovereign debt spreads widening. In fact, the peripheral segment has been holding up well despite market turbulence.
The ECB has fostered a climate of confidence and has the means to stop any new banking crisis degenerating into systemic territory. This is why we view corporate bonds as attractive, particularly in the high yield segment