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Coming up in the Asia-Pac session on Friday:


Coming up in the Asia-Pac session on Friday:


Toeing The Line on Accelerated Taper


Trend Direction Remains Down

     LONDON (MNI) - Any future quantitative easing programme by the European
Central Bank might have to broaden the range of assets it purchases in order to
be effective, ECB sources said, stressing that the eurozone economy would have
to deteriorate significantly to prompt such a move.
     While the ECB is currently far from any return to quantitative easing, it
has stressed that the procedure is now a permanent part of its toolkit. Were it
to turn to it again, though, it would run into the problem which dogged it at
the end of its last QE programme, when it was struggling to find enough eligible
securities to buy, officials noted.
     "There is a lack of bonds to be purchased, especially in Germany, but not
only there. It wouldn't be feasible to do it the same way, so it would probably
require some extension of the assets to be purchased, maybe even stocks," a
source said. "There isn't much left of good credit quality. It's probably better
to buy stocks than junk bonds."
     For the moment, despite a sharp downturn in eurozone growth, which has
prompted the ECB to adjust its assessment of the balance of risks and announce a
new round of targeted longer-term refinancing operations to provide cheap money
for banks, discussion within the Governing Council has not touched on the
possibility of recommencing its asset purchase programme. Any immediate response
to a downturn would be more likely to come in the shape of adjustment of forward
guidance for a long period, sources said, with one saying further resort to QE
would be "a nuclear option.
     "We have always said that we have tools to respond if the situation
deteriorates further but there is nothing concrete on the cards. We still think
that H2 might be a bit better but let's see," another source said, adding, with
regards to possible QE: "It would take a real recession for that to happen and
we also still have an issue with what we could actually buy."
     Nonetheless, while the ECB ceased making net purchases of bonds in
December, it promises to continue reinvesting the principal payments from its
stock of maturing securities for at least an extended period of time past the
date when it starts raising key interest rates.
     "The reinvestments are just a smaller-scale asset purchase programme, the
programme is in fact continuing and this alone must be reassuring," another
source said. "Also, bear in mind, there is no limit to what we can purchase."
     An ECB spokesman, contacted by MNI, declined to comment.
--MNI London Bureau; +44 203 865 3829; email:
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