ECB: Faced with a dilemma - Westpac

Tim Riddell, Research Analyst at Westpac, suggests that the ECB faces a dilemma today that how can QE be extended as the supply of acceptable assets disappears and the transmission mechanism (banks) are not able to pass this on?

Key Quotes

“Could it be that this weekend’s Ecofin meeting provides fiscal or reform initiatives?

Yet more soft data for Germany and building political pressures for Merkel have weighed on EUR, but the risk for EUR may be that there is no further accommodation forthcoming and the ECB again use their press conference to put pressure on the political and fiscal side. This could put greater onus on Ecofin to produce some form of initiative but this shift could take pressure off EUR.

EUR/USD duly drifted into the centre of its range of the past year, but downside seems more limited.

The SNB meet on 15th Sept, but they too face the issue of whether NIRP has reached its limits. EUR/CHF and USD/CHF remain painfully range bound yet with little Swiss data in front of the SNB meeting, it is difficult to foresee a means of breaking these ranges.”