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Three weeks ago, when previewing the restart of the ECB's monetary easing in the form of even more negative rates and further QE - which just like the Fed's rate cut and subsequent ZIRP, NIRP and QE is now inevitable - Goldman laid out three potential "bundles" which Mario Draghi could unveil as one of his last pre-retirement acts, depending on just how severe the ECB perceives Europe's economic slowdown. There were as follows:
First, a “small” program which includes a 10bp deposit rate cut and corporate purchases (scaled to EUR 5bn per month for six months).
Second - Goldman - Medium - Package - Rate
Second, Goldman constructs a “medium” package which includes a 20bp rate cut with tiering, somewhat stronger forward guidance, corporate purchases (EUR 5bn per month for nine months) and limited sovereign purchases (EUR 25bn per month for nine months).
Third, the bank considers a “large” package that contains more aggressive sovereign purchases (scaled to EUR 75bn per month for twelve months) via an increase in the issuer limit, in addition to the other elements in the medium package.
Retrospect - Asset - Class
In retrospect, it appears at least one major asset class was missing.
Idea - Reuters - ECB - Trial - Balloon
To be sure, it's hardly a novel idea: back in 2016, Reuters first floated an ECB trial balloon that the central bank "may soon be forced to follow the Bank of Japan’s example and buy equities as part of any expanded stimulus programme," even as it faces significant hurdles in helping all 19 euro zone members equally without distorting a key market for investors.
Citing analysts, Reuters noted that Draghi, and soon Lagarde, will have to pursue alternative options to loosen policy further to lift growth and inflation across the bloc: "Analysts say these could include large-scale share buying, a policy that the BOJ has already adopted after it started purchasing equity exchange traded funds (ETFs) for its own quantitative...
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