James McCann, European Economist, Standard Life Investments (16.06.2014):
"Indeed the central bank announced everything apart from full blown Quantitative Easing, reflecting its reluctance to cross this Rubicon. This alone shows that the bar for QE remains high with the Governing Council seemingly willing to tolerate below target inflation for nearly three years. If inflation however does not start to rise next year it may be forced to turn to this as a last resort.
While the range of policy measures announced today was impressive, we need to be cautious about the impact that these are likely to have on the real economy.
• While negative deposit rates sounds like a bold step the international experience of this policy suggests that it has a very small impact on bank behaviour. Indeed much of the stimulus from this measure has probably already come through a weaker euro.
• While the targeted LTRO – the flagship announcement – has the potential to support the transmission of monetary policy to the real economy it faces some challenges. Banks will only increase lending if there is sufficient demand from Eurozone corporates and if they are confident in their capitalisation. There is therefore a strong chance that the take-up will fall short of the EUR 400bn notional size of the programme.
• While there was a clear nod to potential private sector asset purchases it should be remembered that the small size and composition of this market means that the stimulus delivered through this channel is unlikely to be large (although it should trigger new issuance). It also forms another important potential stepping stone on the path towards a larger Government Bond orientated QE programme. "
