MNI SOURCES: ECB Could Delay QE Launch, Tie To Data

     LONDON (MNI) - The European Central Bank could announce a delayed return to

quantitative easing at its meeting on Thursday, possibly contingent on further

economic deterioration, amid strong disagreement over whether the additional

stimulus is needed, ECB officials told MNI.

     "There is always a chance there could be a suspended announcement, where

the plans are laid out but with a forward execution date. It isn't what I

expect, but there is a chance," one source said. "I'd be very surprised if there

was no QE announced at all in the package at all this month."

     Another official said that while the outlook is not as bad as during

previous bond-buying episodes, downside risks were intensifying and countries

such as Germany and Italy faced recession.

     "It is almost certain QE will go ahead. It's only a matter of time and

timing," the second official said. "There could be a reinforced or clearer

message saying QE could have a delayed start, perhaps by shifting it to

December, but all will depend on the short-term outlook and whether there will

be a deterioration of the economic situation."

     An announcement that the ECB intends to restart QE at a future point,

conditional on further economic weakening, would allow outgoing President Mario

Draghi to leave the tool in place, while still permitting his successor

Christine Lagarde some say in when and how it is implemented, another source

said.

     Bond purchases would be limited to E30 billion a month, the second official

said. Sources had earlier told MNI that the ECB would announce fresh net asset

purchases of around E20 billion to E30 billion a month at its September meeting,

together with a potentially tiered cut in its deposit rate and a further dovish

adjustment to forward guidance.

     While some ECB policymakers, including Finland's Olli Rehn, have called for

significant additional stimulus, Germany's Jens Weidmann and Sabine

Lautenschlaeger, together with Klaas Knot of the Netherlands have publicly said

that this would be unnecessary. ECB officials told MNI the discussion at

President Mario Draghi's penultimate meeting would be livelier than usual, with

two using the word "blunt" to describe the likely atmosphere in what another

called "the last movement of the Draghi symphony."

     After its July meeting, the ECB instructed its committees to examine

options for restarting asset purchases, and for measures which would mitigate

the effect of lower interest rates on the banking system, such as a tiered

deposit rate.

     "Draghi has set the path for the future leadership, looking ahead, and

turning back would be counterproductive," the second official said. "The ECB

can't go back and forth on its steps, flip-flopping ... in its communication

approach."

     An ECB spokeswoman said she could not comment on what the sources told MNI.

--MNI London Bureau; +44 203 865 3829; email: jason.webb@marketnews.com

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