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4 Mar 2015
Will ECB’s QE actually help? – ING
FXStreet (Barcelona) - The psychological effect of the QE announcement was established by the weakening of the euro, notes Carsten Brzeski of ING, as he lists the two important effects QE should have.
Key Quotes
“The crucial question remains whether QE will actually help, beyond the pure psychological announcement effect. In our view, QE should have at least two important effects: a demand effect and a crowding out effect.”
“The demand effect should lead to excess liquidity and lower bond yields.”
“The crowding out effect is enhanced by the negative deposit rate, pushing banks into a search for yield. The search for yield should also push investors into non-euro denominated assets, thereby weakening the euro. The latter remains in our view the most direct impact.”
“The most pressing issue is whether market participants are really willing (or able) to sell their bonds to the ECB, given that regulatory requirements do not always make it easy to join the hunt for yields.”
Key Quotes
“The crucial question remains whether QE will actually help, beyond the pure psychological announcement effect. In our view, QE should have at least two important effects: a demand effect and a crowding out effect.”
“The demand effect should lead to excess liquidity and lower bond yields.”
“The crowding out effect is enhanced by the negative deposit rate, pushing banks into a search for yield. The search for yield should also push investors into non-euro denominated assets, thereby weakening the euro. The latter remains in our view the most direct impact.”
“The most pressing issue is whether market participants are really willing (or able) to sell their bonds to the ECB, given that regulatory requirements do not always make it easy to join the hunt for yields.”