Reuters ECB poll sees QE not deposit rate cut
From @VictorLeonardi2
The latest ECB poll was obsolete the moment it was released. It was largely taken before yesterday's leak that the ECB is leaning towards cutting deposit rates and struggling with how to expand QE.
Still, the poll is informative because it shows what was expected before the report. It shows that economists thought an expansion of QE to 75 billion euros per month from 60 million was the most likely option -- with 75% of economists expecting it on Dec 3. The consensus showed the QE program being extended to June 2017 from Sept 2016.
All told, that would add 810 billion to the QE programme but ECB officials indicated that bond supply constraints could hinder that plan of attack.
The poll showed less than have of economists expecting a deposit rate cut but yesterday's report said that was the least-contentious and most-likely scenario.
What's changed?
There is no easy playbook for weighing a deposit rate cut versus QE. The euro is lower today and broke 1.07 so perhaps that's the best indication.
On QE, the aim was to drive down borrowing rates but with German 10s yielding 0.63% and Italian 10s at 1.70%, there isn't much further room to go. However, a QE program that targeted corporate debt could lower rates for businesses. That's something the ECB leak seemed to rule out.
The deposit rate may be a very powerful thing. Banks will be stuck paying more to park cash and that will encourage them to either lend it out or move it into another currency. That may prove to be a powerful force.
