- We expect the ECB to refrain from further policy easing this month, although an easing bias remains.
- Mario Draghi is still waiting for Spain to make an official request for help from the ESM and ECB. He might have to wait for a while.
- Additional measures may soon be needed. The October PMI data confirmed that the global recovery is surpassing the euro area for the time being.
- The market is pricing almost zero probability of a deposit rate cut at the November meeting.
- Even a small easing step or just a hint that the ECB is moving towards further action is likely to be perceived positively by risk markets.
According to Bloomberg, only one of 63 analysts surveyed expects a rate cut this month. We do not expect a rate cut either. We expect the ECB to keep rates unchanged at this level for a long time – possibly until 2015. The benefits of further rate cuts are less clear cut as rates have approached zero, so Draghi is almost certainly looking for alternative measures to be put in place instead.
Indeed, additional measures may soon be needed. The October PMI data confirmed that the global recovery is surpassing the euro area for the time being. However, we do not expect Mario Draghi to put new measures in place at this meeting.
First, Draghi is still waiting for Spain to make an official request for help from the ESM and ECB. He might have to wait for a while. Spain has almost funded itself for the rest of the year and Mariano Rajoy seems far from eager to ask for help. Draghi only has himself to thank for this. The ECB’s OMT programme has so far worked very well and taken the pressure off Spain despite the ECB not having bought a single bond yet.
Second, it is not obvious what instruments the ECB should apply until it can activate the OMT programme (see annex for more details on each of these instruments).
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