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2 Oct 2013
Flash: What can Draghi do? - Rabobank
FXstreet.com (London) - Looking ahead, Jane Foley, Senior Currency Strategist at Rabobank explained upward pressures to market rates that the ECB is particularly attentive towards.
Key Quotes:
“At the start of last week ECB President Draghi stirred up speculation of another LTRO by remarking that the Bank is particularly attentive to the fact that that the repayment of central bank credit can reinforce upward pressures on term money market rates. As a consequence there is now plenty of speculation in the market that the ECB could follow through with another LTRO before the end of the year”.
“We see this as unlikely”.
“After all, stronger banks are repaying previous LTRO loans which suggests that there may not be much demand for a new scheme at present. That said, the existing LTROs redeem on January 29 and February 26 2015 suggesting that there is scope for maturity extension of the existing loans at some point in the future”.
“Our expectation is that in order to achieve this maturity extension while signalling that the ECB is gradually moving towards the exit, that a new 2 yr LTRO could be announced early next year which would have the effect of extended the maturity of the scheme by 1 yr to those banks that wish to continue participating while also signalling reluctance to put in place another 3 year operation”.
Key Quotes:
“At the start of last week ECB President Draghi stirred up speculation of another LTRO by remarking that the Bank is particularly attentive to the fact that that the repayment of central bank credit can reinforce upward pressures on term money market rates. As a consequence there is now plenty of speculation in the market that the ECB could follow through with another LTRO before the end of the year”.
“We see this as unlikely”.
“After all, stronger banks are repaying previous LTRO loans which suggests that there may not be much demand for a new scheme at present. That said, the existing LTROs redeem on January 29 and February 26 2015 suggesting that there is scope for maturity extension of the existing loans at some point in the future”.
“Our expectation is that in order to achieve this maturity extension while signalling that the ECB is gradually moving towards the exit, that a new 2 yr LTRO could be announced early next year which would have the effect of extended the maturity of the scheme by 1 yr to those banks that wish to continue participating while also signalling reluctance to put in place another 3 year operation”.