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Draghi Goes All Out: ECB Cuts Rates, Restarts Open-Ended QE, Changes Forward Guidance, Eases TLTRO, Introduces Tiering

Draghi Goes All Out: ECB Cuts Rates, Restarts Open-Ended QE, Changes Forward Guidance, Eases TLTRO, Introduces Tiering

With the market worried that Mario Draghi could surprise hawkishly in his parting announcement…

… that is how the market initially interpreted today’s ECB press release, which cut already negative deposit rates for the first time since 2016 to stimulate the sagging European economy, but by a smaller than expected 10bps to -0.50% while restarting QE but by “only” €20 billion, less than the €30 billion baseline.

However, there was more than enough offsetting dovish bells and whistles, because while the restarted QE (or the Asset Purchase Program) was smaller than expected, it will be open-ended, and the ECB will run it “for as long as necessary to reinforce the accommodative impact of its policy rates, and to end shortly before it starts raising the key ECB interest rates.” Of course, the question here is how long can a safe-asset constrained Europe run an “open-ended” QE, and the answer is it depends on what the issuer limit by nation is, with Frederik Ducrozet observing that “at €20bn/month, assuming up to €5bn in corporate bonds, QE can run for ~9 months under current limits… and for more than 7 years if limits are raised to 50%!” So look for more information on that angle.


 · 43m

OPEN-ENDED QE. Let that sink in. Much more important than the monthly pace of asset purchases, i.e. even better than we hoped.

At €20bn/month, assuming up to €5bn in corporate bonds, QE can run for ~9 months under current limits… and for more than 7 years if limits are raised to 50%!
We might get details about issuer limits in the separate press releases and/or the press conference.

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