Divyang Shah, Senior IFR Strategist
We had certainly felt that a further 25bp cut on the refi rate coupled with details on how to improve funding for SMEs would be forthcoming.
We have heard from Chancellor Merkel as well as FinMin Schaeuble on the worries over monetary policy being too expansive for Germany that seems to be translating into a lack of support from ECB heavyweights Mersch and Asmussen.
In the past ECB President Draghi has pushed through easing measures choosing to explain the ECB’s stance to politicians – remember the OMT and the appearance of Draghi in the German parliament?
But repeating the same trick again could prove difficult especially as the urgency of the crisis has been replaced by growth concerns that are more of an issue for peripheral countries.
Germany has already supported the easing of fiscal austerity targets for some eurozone countries which in an election year would have been difficult to envisage.
Building a consensus for the June meeting is going to be difficult but at this juncture the markets seem to be more dominated by the Fed QE tapering debate and BoJ’s inability to reduce JGB volatility than the prospect of further ECB stimulus.
