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MNI (London)
     LONDON (MNI) - Some European Central Bank officials have said quantitative
easing may return if necessary, but others doubt whether it will be possible
given limits on bond purchases and ECB officials told MNI no fresh major policy
action is likely during the remainder of Mario Draghi's term as president.
     "I wouldn't look too much into the discussion at this early stage, it's
more of a brainstorming. Way too soon," an ECB official told MNI, after Draghi
said at the ECB's June 6 press conference that Governing Council members had
raised the possibility of restarting its asset purchase programme or further
extending forward guidance. "But, as in the past, there are slightly different
views within the Governing Council."
     Some Council members argue that the ECB's ongoing reinvestment of maturing
bonds within its existing bond portfolio already constitutes a "mini-QE", and
that holdings are uncomfortably close to the limit of 33% of any individual
country's outstanding debt, the official said, adding that: "Others dismiss the
notion of market saturation. "
     "I believe there is no limit to what we can purchase, but we need solid
grounds to reboot," the source said. "We need a severe deterioration of economic
conditions and a new slip towards deflation to justify a reboot."
     The Bank of Finland's Olli Rehn has also called for quantitative easing to
be resumed "should economic developments so require."
     But, while ECB sources pointed to fears that the eurozone slowdown could
deepen, and to risks such as the China-U.S. trade dispute and Brexit which have
intensified in recent months, they stressed that QE would only reappear in the
case of a significant further economic deterioration.
     "If it gets worse, we will have to see, but it is not clear what has to
happen," another ECB official said, adding that economic data has been mixed and
that it was unlikely the ECB would take fresh major measures before Draghi
concludes his term at the end of October.
     "There is the September meeting, I don't see a big change there, unless
there is a summer crisis or something. So it would be reasonable to think that
the next big decision is likely to be December."
     At its June meeting, the ECB announced terms for cheap loans for banks in
the shape of a third iteration of its targeted longer-term refinancing
operations. The loans will allow banks to replace earlier TLTROs and satisfy net
stable funding requirements, and one source told MNI that it was possible that a
fourth round of the loans could be announced before the third has expired in
just over two years' time. Another ECB official said it was too soon to discuss
a TLTRO IV, but that the ECB would nonetheless have to consider any sudden
funding requirement facing banks when the upcoming round matures. A third source
said that TLTRO IV would not be impossible if the economy is weak, while a
fourth official dismissed the idea.
     ECB sources have previously told MNI that the central bank may be forced to
broaden the range of assets it purchases in any fresh range of quantitative
easing, maybe even to stocks. But one of the sources this time was sceptical of
such a move: "The end goal of QE is to create liquidity to support financial
markets by stabilizing the volatility of state securities and thereby keep under
control sovereign risk ... wouldn't stocks and the like actually infringe and
hinder such a key function? Wouldn't trading in such other instruments raise
volatility and by extension risk factors? I don't see that (option) as viable."
     Asked to respond to what the sources told MNI, an ECB spokesman said he
could not comment.
--MNI London Bureau; +44 203 865 3829; email:
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MNI London Bureau | +44 203-865-3812 |