Last month the ECB’s Joerg Asmussen was willing to talk about leaving the SMP programme unsterilised, in effect converting the programme into QE. We now have ECB’s Peter Praet suggesting that the ECB can use the balance sheet capacity which includes outright purchases.
It’s early days on the debate over QE but clearly with the risks of deflation on the horizon, the ECB does not want to be seen to be ruling out any options.
Keeping all the options open would help to further cement the flattening of the money market curve and help keep a lid on the euro.
The strong euro has played a role in helping to create disinflation. Before the ECB starts to consider QE they are likely to focus on a negative deposit rate and further targeted VLTROs.
