Questions persist as to whether ECB QE will work – KBC

FXStreet (Barcelona) - The KBC Bank Research Team argues that risks for a negative inflation rate in 2015 and a struggling GDP growth still exists for the eurozone as the impact of ECB’s QE is unlikely to be spectacular or immediate.

Key Quotes

“If there are many reasons for markets to welcome yesterday’s decisive ECB announcement, it must be remembered that there are many theoretical and empirical reservations as to how successful it may be in moving the trajectory of activity and inflation in the Euro area to a less worrisome path.”

“While the scale of the asset purchase scheme is impressive, it has to be recalled that debate continues as to the exact scale of impact a succession of QE schemes has had on the US economy where capital markets are the predominant source of funding. As a result, any impact on the Euro area economy from the ECB actions is unlikely to be spectacular or immediate.”

“We still see risks that GDP growth might struggle to reach 1% in 2015 and a negative inflation rate for the year as a whole is also a strong possibility. That said, yesterday’s measures could provide the incremental spark necessary to push economic conditions in a more positive direction.”

“Most of the technical details of the new Asset Purchase Scheme were framed with a view to giving it as broad a traction as possible. So, for example, the ECB can purchase assets with ‘a minimum remaining maturity of 2 years and a maximum of 30 years at the time of purchase’. It can also purchase securities that currently have a negative yield while the ECB also ‘accepts the same (pari passu) treatment as private investors’.”