Back
10 Jan 2014
Flash: Firmer ECB language a warning sign - Nomura
FXstreet.com (Bali) - In view of Nick Matthews, European Economist at Nomura, the firmer ECB language is an indication of the level of concern at the ECB.
Key Quotes
"Although the baseline (that envisages a modest recovery and gradual pick-up in inflation) continues to track, the margin of error and breathing space is currently very slim, especially with headline inflation at 0.8% y-o-y in December 2013 and forecast at 1.1% this year and 1.3% next year."
"The ECB‟s message gives a clear signal in, our view, that given the weak growth/low inflation backdrop, the ECB will act as soon as they see any deterioration. In turn this indicates that further stimulus could be forthcoming at any future meeting depending on the circumstances in the lead up to that meeting. In this instance, the experience of November 2013 (i.e., a swift decision to change policy) would likely be repeated again this year, if necessary."
"Although our baseline contains no further stimulus, the risk of additional action from the ECB clearly remains high. While the form will depend on which contingency might materialise, at this stage a further refi rate cut in Q1 (by a non-standard 10-15bp) is perhaps the most likely, in the short term, to address any unwarranted tightening in money market conditions (especially from ongoing LTRO repayments), while a
worsening of incoming data would increase the chances of additional non-standard measures.
Key Quotes
"Although the baseline (that envisages a modest recovery and gradual pick-up in inflation) continues to track, the margin of error and breathing space is currently very slim, especially with headline inflation at 0.8% y-o-y in December 2013 and forecast at 1.1% this year and 1.3% next year."
"The ECB‟s message gives a clear signal in, our view, that given the weak growth/low inflation backdrop, the ECB will act as soon as they see any deterioration. In turn this indicates that further stimulus could be forthcoming at any future meeting depending on the circumstances in the lead up to that meeting. In this instance, the experience of November 2013 (i.e., a swift decision to change policy) would likely be repeated again this year, if necessary."
"Although our baseline contains no further stimulus, the risk of additional action from the ECB clearly remains high. While the form will depend on which contingency might materialise, at this stage a further refi rate cut in Q1 (by a non-standard 10-15bp) is perhaps the most likely, in the short term, to address any unwarranted tightening in money market conditions (especially from ongoing LTRO repayments), while a
worsening of incoming data would increase the chances of additional non-standard measures.