ECB made bigger changes than expected – Westpac

By FXStreet Richard Franulovich, analyst at Westpac explained that today’s multi-pronged ECB policy announcement – a 10bp cut in the deposit rate, a EUR20bn increase in the monthly pace of purchases and the announcement of four new targeted longer term refinancing operations – was initially greeted as a strong positive for risk assets.

Key Quotes:

“The overall package is indeed materially larger than many assumed. Credit markets should be especially well supported going forward with the ECB expanding the pool of eligible assets to include investment grade non-bank corporate bonds. And, with the ECB paying banks to borrow at the four new TLTROs – at least those with net lending exceeding a certain benchmark – the ECB has deftly neutralised bank profitability issues inflicted by negative deposit rates.

10yr bund yields initially fell 7bp, financial stocks rose 4-6% and credit markets rallied. EUR/USD initially fell 150pts. The positive early reception would have also been enhanced by a strengthened “announcement effect” whereby today’s stimulus measures were all announced at once. (Until today the ECB’s standard practice had been to announce changes to the QE program during President Draghi’s press conference, 45 minutes after the rate announcement).”
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Source:: FX Street