With euro zone growth faltering again, markets are debating what else the Europe...
LONDON - With euro zone growth faltering again, markets are debating what else the European Central Bank can do to shore up the economy.
So, a change in guidance would likely be combined with a very generous package of cheap multi-year loans - or targeted longer-term refinancing operations - aimed at banks. Capital Economics expects QE to return next year and ABN AMRO believes any new stimulus is likely to take this form. “Although raising the limit would likely be an uncomfortable situation for the ECB, it would be willing to do this in our view given the lack of other alternatives,” said ABN AMRO’s head of financial market research Nick Kounis.With government bonds getting scarce, the ECB added corporate debt to QE asset purchases in 2016. A new QE round could include shares.
“It’s doable and sensible but it would be complicated,” said Marchel Alexandrovich, European financial economist at Jefferies. The European stock market is relatively small and buying stocks could leave the ECB open to criticism that it is picking companies that don’t apply best business practices, he said.
The BOJ has targeted long-term yields around zero since 2016, and the idea is gaining traction. Federal Reserve official Lael Brainard has said she wanted to explore whether the Fed, in a future downturn, should consider this step.
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