POV (Part 2): If the ECB were to ease policy....>

ECB: POV (Part 2): If the ECB were to ease policy at this meeting, this would

most likely take the form of an expansion to the PEPP given that it is the most

flexible tool available for supporting the recovery, preventing a disorderly

tightening of financial conditions and maintaining the smooth operation of the

monetary transmission mechanism. Given that the economic recovery could prove

anaemic and protracted (particularly in the periphery where the impact of

coronavirus has been most severe), the ECB will likely need to bolster the

purchasing capacity of the PEPP in the future to support the increase in

sovereign issuance that is coming down the pipeline. Doing so now would allow

the ECB to get ahead of the curve and signal a commitment to maintaining an

accommodative monetary position.

- There is also a chance of some easing of TLTRO conditions to spur lending and

prevent the recovery from being choked off before it has gained momentum. The

probability of a further deposit rate cut at this meeting is quite low given

pre-existing concerns about deeply negative policy rates and the efficacy of

further marginal cuts in the face of an unprecedented economic contraction.