Will the European Central Bank kick start QE?

Thursday, 12th September 2019 09:15 - by Rajan Dhall

Today is the ECB rate decision and the Draghi and co are expected to cut the deposit rate by 10bps to -0.50%. 

The big question today is if the ECB will add more stimulus to the market due to an economic slowdown in the Eurozone. 

So the central bank are expected to cut the deposit rate for the first time since 2016 and around 60% of analysts surveyed think a 10bps cut is on the way with the other 37% or so believe a 20 bps cut is coming. 

The issue with the additional QE package is if current President Draghi will use up the ECB's tools ahead of his replacement Christine Lagarde, who is set to replace Draghi next month. The ECB are already reinvesting the proceeds of the previous rounds of bond-buying and a few months ago this looked nailed on but the rhetoric has cooled.

At least this gives us something to look forward to at the event. Forward guidance from the ECB has made these central bank conferences somewhat of a bore in recent months and this time we may get some fireworks and god forbid some volatility.

A tiered deposit rate is also likely to be added this month. This is when banks are exempted in part from paying the ECB's 0.40% annual charge on their excess reserves, this would help increase their profits as they struggle with an unexpected growth slowdown. The Dutch government sent a letter to the ECB requesting they do not start the tiering system but this is a recent development and there is not enough time to hear a reply ahead of today's event.

Lastly, the updated forward guidance is many analysts base case scenario. Many believe that the ECB will use this tool rather than launch another big stimulus package today. Try and prep the market for when and if they will add to QE in the future rather than throw the kitchen sink at the growth problem. Either way, it will make for an interesting session and watch out for some volatility in the equities markets. 

The Writer's views are their own, not a representation of London South East's. No advice is inferred or given. If you require financial advice, please seek an Independent Financial Adviser.