50-50 chance of ECB QE programme in next 12 months - poll

Monday 18 August 2014 15.31
Inflation fell to just 0.4% in July, well below the ECB's target
Inflation fell to just 0.4% in July, well below the ECB's target

There is an even 50-50 chance that the European Central Bank will resort to asset purchases to boost inflation in the coming year, a Reuters poll of euro money market traders found today. 

Economic growth in the euro zone was flat in the second quarter, with two of its biggest economies - Germany and Italy - contracting, while inflation fell to just 0.4% in July, well below the bank's target. 

Both sets of data suggest a need for more central bank support. 

The ECB in June announced more long-term cheap loans with a condition that banks use this cash to lend to the real economy but traders, economists and market watchers polled by Reuters do not expect them to be enough. 

As a result, traders in the latest Reuters poll gave a 50% chance the ECB would conduct an outright quantitative easing programme in addition to the Targeted Long-term Refinancing Operations (TLTROs). 

That is higher than the one-in-three chance given by economists in a Reuters poll last week. 

Back in 2011 and 2012, the ECB flushed the money market with over €1 trillion to avert a credit crunch at the peak of the sovereign debt crisis. 

Banks, which have already repaid over half of those crisis loans early, are expected to return another €3.5 billion next week, more than the €2.9 billion they will pay back this week