Key takeaways from the latest ECB meeting

Pioneer Investments’ Tanguy Le Saout, head of European Fixed Income discusses the latest ECB annoucement.

1. The ECB will start buying corporate bonds on June 8th. Following the announcement of a Corporate Bond purchase Programme in March 2016, details have slowly been emerging on the composition and implementation of the programme. But what was missing was when the purchases would start and how much the ECB were planning to buy each month. Today we got one of vital pieces of the jigsaw. Buying will commence on June 8th, but the ECB have not announced how much they plan to buy each month. Instead, they will issue, every Monday starting July 11th, the names of the issuers they have bought and the split between the ECB’s primary market and secondary market purchases.

2. There was a modest upward revision to the forecasted average inflation rate in 2016 (from +0.1% to +0.2%), whilst the forecasted levels for 2017 and 2018 were left unchanged at 1.3% and 1.6% respectively. There had been speculation in the run-up to the meeting that these forecasts would be revised higher, as the oil price has risen since the March meeting. In our opinion, that lack of revision is somewhat dovish.

3. Quantitative Easing (QE) will continue until its current end date of March 2017, or “longer if necessary” until a “sustained inflation adjustment” has been achieved. Given that the ECB inflation forecasts are still below their target of “close to, but below 2%”, that leaves the door open for an extension of the current QE programme, but we suspect that if this extension is announced, it will probably happen at the September 2016 meeting.

4. ECB President Mario Draghi noted that Q1 2016 growth was strong, and expected some slowdown in Q2 as payback. He did note that the risks to growth remained to the downside, but that the balance of risks are starting to improve. Specific risks to the downside were mentioned as stemming from the “global economy, BREXIT, subdued Emerging Markets prospects and slow structural reforms”. Helping to subdue these risks are the QE measures already announced but yet to be enacted, such as the corporate bond buying programme and the Targeted Long Term Rate Operations (TLTRO’s), which start later this month.

5. There was no announcement about Greek government bonds becoming eligible for the ECB’s bond purchase programme. Draghi mentioned that a presentation had been made to the meeting, but no decision had been made, mainly because “prior actions” still had to be completed. Once these “prior actions” have been completed (which Draghi expected to happen soon), then the ECB will make a statement on the eligibility of Greek debt for the ECB’s bond-buying programme. Draghi noted that this statement would follow an ECB meeting, so Greek eligibility will only occur next September at the earliest.

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