Goldman sees ECB boost pandemic asset purchases in December by Bloomberg

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(Bloomberg) – Goldman Sachs Group Inc (NYSE :). predicts that the European Central Bank will step up its pandemic € 400 billion ($ 470 billion) bond-buying program in December, after euro area inflation weakens further.

The ECB is also likely to extend the emergency asset purchase transaction, known as PEPP, by six months until the end of 2021, analysts at the US bank wrote in a note on Monday. to investors. Reinvestments of maturing assets under the plan are expected to continue until the end of 2023, they wrote, adding that the central bank may also target the purchase of high-yield bonds.

“An expansion of the PEPP is likely to be more effective in supporting the recovery of the eurozone economy – particularly in southern Europe, where it is most needed – than a cut in rates or an extension of the program. regular asset purchases, ”Goldman analysts, including Soeren Radde, wrote. Indeed, the PEPP “would be more powerful to reduce credit spreads”.

Speculation over further monetary easing has intensified for a host of reasons – from the recent rise in coronavirus infection rates in Spain and France to lower euro area core inflation to an all-time high 0.2% in September. The latter prompted ECB officials to say they were uncomfortable with near zero price growth.

Goldman previously expected the PEPP – with a current limit of € 1.35 trillion – to end in mid-2021 and for the ECB to provide further support through its regular asset purchase program launched in 2015.

After the Governing Council’s latest policy update on September 10, analysts at the U.S. bank said they expected pandemic operations to be extended only “in the event of more severe viral disruptions. and weaker fiscal expansion than forecast in the fall budgets. “

Credit spreads are a key financial condition that investors watch to monitor market strains as well as equity and bond gauges and, as a group, they have not yet returned to pre-pandemic levels. . A Bloomberg index that measures financial conditions in the eurozone has so far only tracked about 83% of the Covid-fueled market downturn that began in the first quarter.

The ECB could consider other tools, including changing the terms of its long-term loans to banks and increasing the “hierarchical multiplier” of excess reserves in banks, which would ease negative interest rate pressure by exempting banks from a larger share of bank deposits.

© 2020 Bloomberg L.P.

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