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Updated Barclays/Bbg Extension Estimates for US


Late Session Selling

--Minor Differences On Timing, Size of First Hike -- But Over A Year Away
     LONDON (MNI) - Although the European Central Bank has confirmed its aim to
end its bond buying programme in December, policymakers will, over coming
months, continue to drive home the message that the policy stance is still
accommodative, MNI understands after discussions with Eurosystem and monetary
policy sources.
     ECB President Mario Draghi spent much of his time at the central bank's
Sintra Forum last week underlining the messages given out in his June 14 policy
statement and following press conference, stressing that inflation expectations
remained well anchored.
     Draghi has received much acclaim from his peers on the Governing Council
over how he once again steered a path through the conflicting aims of the
opposing wings and put out market guidance that by and large kept everyone on
     He was given credit for how the message was interpreted as the end of
quantitative easing by the 'Berlin public' but seen as mildly dovish by the
financial markets.
     Governing Council members at the dovish end of the spectrum will continue
to highlight the reinvestment of maturing bonds and the option of restarting the
scheme if adverse financial conditions develop.
     But MNI understands that the flexibility the scheme offers for doves will,
if needed, also be there for the more hawkish Governing Council members to argue
for earlier action on rates if there is a serious acceleration in both inflation
and medium term expectations -- not something that is currently on radar
     --APP TAPER 
     MNI has been told that the APP tapering -- already lowered to E15 billion a
month from end-September and set to expire in December provided economic data
develop broadly as expected -- should have come as no surprise and should have
been "taken for granted", as it was the most natural way to withdraw from
extended stimulus.
     "It is impossible -- and highly hazardous -- to abruptly and altogether at
once withdraw from the market a high-impact and significant tool such as the APP
without implementing some sort of gradual, parachute-like downsizing, easing the
transition and preparing the ground for normalization".
     This is why the guarantee of continued accommodative policy beyond the APP
termination remains crucial to the consolidation of monetary goals. If new
adverse financial conditions should arise across the bloc, the ECB stands ready
to act, as usual, and the APP will still be at hand.
     All that is left is for policymakers to decide is the exact parameters of
the bond reinvestments, with MNI being told "a concrete plan with the details of
such new securities' reinvestments will come at a later stage," probably not
before "the actual tapering begins."
     Despite the first hike in rates being at least a year away, MNI has picked
up that there is already some modest divergence in views as to the exact timing
and level.
     As much as Draghi tried to close down the debate for now some, albeit
minor, differences are already bobbling up. Most expect the first hike to come
late in Q3, but some see it in early Q4 -- not an obvious source of important
difference but perhaps pushing the timing back until after Draghi has stepped
     There is also debate about the size of the initial move. Some posited a 15
bps hike in the deposit rate as soon as early summer 2019, which would be
portrayed by the ECB not as the first hike, per se, but merely as a technical
move re-establishing the symmetry of the ECB's rate suite. 
     But one thing that appears clear is that when rate hikes do eventually
start, they will, to paraphrase the Bank of England, be limited and gradual.
--MNI London Bureau; tel: +44 203-586-2225; email:
--MNI London Bureau; tel: +44 203-586-2223; email:
[TOPICS: M$X$$$]
MNI London Bureau | +44 203-865-3812 |