Wednesday, December 11 14:33:19
The ECB's next salvo after cutting its main interest rate to near zero will be more cheap cash to banks rather than outright bond buying or even charging banks to park money overnight, a Reuters poll found.
Well over half of respondents in the poll - 25 of 40 - taken this week said the ECB would increase liquidity through a third Long-Term Refinancing Operation (LTRO), probably early next year. That is slightly fewer than in a November poll.
"The amount of excess liquidity is slowly draining from the euro zone which has the danger of pushing up money market rates," said James Howat at Capital Economics. "(LTROs)could be seen as way to get credit back into the real economy which is lacking at the moment."
Banks have already paid back over a third of the just over 1 trillion euros they borrowed through two LTROs in December 2011 and February last year, reducing excess liquidity in the euro zone and raising money market rates.
Still, the results come after a Reuters poll of money market traders earlier this month found a slim majority of them saying another LTRO was unnecessary.
Having already cut the key refinancing rate to rock bottom the ECB won't cut its deposit rate below zero - a move that would effectively mean banks have to pay to park their cash overnight, said 37 of the 39 economists.
And only seven of 39 said the central bank would embark on a programme of unsterilised bond purchases - buying the assets without offsetting the money injected, or quantitative easing.
Unlike central banks in the United States, Britain and Japan, the ECB does not buy bonds outright but instead uses them as collateral against loans, effectively taking them off the market or sterilising them.
A separate Reuters poll of over 40 fixed income strategists suggests yields on safe-haven German bunds will rise only slightly in the coming year.
Ten-year yields will be only 45 basis points higher in 12 months than forecasts for one month levels.
In a surprise shift last month the ECB chopped its main refinancing rate to a record low of 0.25 percent, giving it scant room to cut further, and economists were split as to how much of an impact that move had on markets.
Twenty-two said it was ineffective, while one said it was very ineffective. 16 said it had been effective.
Only a handful of the economists polled said the ECB would follow up with another reduction in rates. Just one had pencilled in a hike before the middle of 2015.
The ECB has been battling to support growth in the 17-nation currency bloc (to be enlarged by Latvia adopting the euro at the start of 2014).
The euro zone escaped recession earlier his year, but growth will be marginal at best for some time yet according to the poll. Gross domestic product was seen expanding 0.2-0.4 percent per quarter through to the middle of 2015. Forecasts were little changed from last month's poll.
"The bottom-line message is that the path out of recession is a long one and the recovery remains fragile," DZ Bank economists said in a note to clients.
The ECB's rate cut was also prompted by inflation falling to just 0.7 percent in October, the lowest in nearly four years and substantially below its 2 percent target ceiling.