The ECB disappointith, the ECB easith again

January 22, 2016

Research Team at TDS, notes that the ECB left policy on hold, but gave as clear an indication as possible that further easing is likely in March.

Key Quotes

“The principal driver of their shift in view was low 2016 inflation on the back of oil, alongside downside risks to growth from heightened uncertainty and geopolitical risks. 

Given the points made in the statement and by Draghi in the press conference, we now expect the ECB to cut the deposit rate by 10bps in March, with a 30-40% chance of a further 10bps either in March or June, but extensions or augmentations to QE still seem unlikely at this point. 

With potential for changing market dynamics in the coming weeks, we take profit on our 10y bund-Treasury tighteners at 156bps, will look for better re-entry levels later, and expect our ERZ6/ERZ7 flattener to continue to perform and would expect to hit our target there by March.”

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