ECB fails to meet elevated expectations

The set of new easing measures by the European Central Bank (ECB) was at the lower end of elevated markets expectations, but does not change our expectation of a continued moderate economic recovery

The ECB announced various easing measures yesterday, but most were just at the lower end of expectations: the size of the deposit rate cut (–0.3%), the extension of the asset purchase program (March 2017) and the unchanged pace of monthly asset purchases (EUR 60 bn). Apart from these parameters, the ECB announced the inclusion of regional and local sovereign debt instruments (with Germany the main beneficiary) and a reinvestment policy of maturing principal (which becomes relevant only in the spring of 2017).

Going forward, we expect the ECB to remain on hold and focus on the implementation of the asset purchase program, unless Eurozone economic data were to unexpectedly deteriorate. In the spring of 2016, it will review the parameters of current program, providing the next “regular“ opportunity for new easing measures. The ECB’s decision also has implications for other central banks, particularly in small open economies with strong ties with the Eurozone. One of the most prominent is the Swiss National Bank (SNB), which we continue to expect to follow with a 25 basis points rate cut at its regular meeting on 10 December in order to soften appreciation pressure on the EUR/CHF exchange rate. For more details on the ECB decision, please refer to our Research Alert from 3 December 2015, “ECB fails to meet elevated expectations.”

Credit Suisse – Investment Strategy & Research