Nomura now looks for the European Central Bank to undertake more monetary accommodation, including a cut in interest rates by early October. The firm describes ECB President Mario Draghi’s recent speech at a Federal Reserve forum in Jackson Hole, Wyo., as more dovish than expected.
Nomura says it now expects the ECB to cut all key interest rates by another 10 basis points by the Oct. 2 meeting at the latest, but adding that a rate cut is more likely as early as the Sept. 4 meeting.
“The main argument for cutting in September would be to demonstrate a quick response to deteriorating inflation expectations and the ECB’s commitment to action in the face of such an event,” Nomura says. Nomura also says that Draghi stepped up expectations of purchases of asset-backed securities.
“We are now formalizing as part of our base case that the ECB will announce and launch an ABS purchase program by December at the latest, having previously noted a rising probability of outright ABS purchases by year-end,” Nomura says. “We believe the size of the purchase program will be small – between EUR50bn and EUR100bn over a one-year period and that it will exclude mortgage-backed ABS.”
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