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28 Jan 2015
ECB balance sheet forecasts - BAML
FXStreet (Guatemala) - Analysts at Bank of America Merrill Lynch explained that QE is the main, but not the only driver of ECB balance sheet.
Key Quotes:
"With €60bn of purchases a month adding up to €1.08tn over 18 months, QE
should be the main driver of the ECB’s balance sheet over the next couple of
years."
"After all, that amount is equivalent to 50% of the Bank’s balance sheet at
the end of 2014. That said, other components of the balance sheet may also vary significantly in size, as was observed over the past five years."
"This is the case for refinancing operations (MROs, LTROs, TLTROs) and other ECB monetary policy portfolios (SMP, covered bond purchase programmes CBPP1 and CBPP2)."
"Based on our estimates for the evolution of these other components, we calculate that the ECB’s balance sheet would expand by €1.14tn up to Sep 2016, thus reaching €3.31tn."
"Such a level would be clearly above the €3tn mark that the ECB had previously intended to reach, but only slightly higher than the expansion implied by the QE program."
"This results from our conservative forecasts for banks’ borrowings at the weekly MROs and monthly 3M LTROs."
"We look for these to drop as excess liquidity rises, consistent with the end-2012 levels (i.e., declining to €75bn and €17bn, respectively). We also account for a likely reduction in the size of the ECB’s SMP, CBPP1 and CBPP2 portfolios, as bonds mature."
"Against these items, Quarterly TLTROs should provide for a net liquidity addition."
Key Quotes:
"With €60bn of purchases a month adding up to €1.08tn over 18 months, QE
should be the main driver of the ECB’s balance sheet over the next couple of
years."
"After all, that amount is equivalent to 50% of the Bank’s balance sheet at
the end of 2014. That said, other components of the balance sheet may also vary significantly in size, as was observed over the past five years."
"This is the case for refinancing operations (MROs, LTROs, TLTROs) and other ECB monetary policy portfolios (SMP, covered bond purchase programmes CBPP1 and CBPP2)."
"Based on our estimates for the evolution of these other components, we calculate that the ECB’s balance sheet would expand by €1.14tn up to Sep 2016, thus reaching €3.31tn."
"Such a level would be clearly above the €3tn mark that the ECB had previously intended to reach, but only slightly higher than the expansion implied by the QE program."
"This results from our conservative forecasts for banks’ borrowings at the weekly MROs and monthly 3M LTROs."
"We look for these to drop as excess liquidity rises, consistent with the end-2012 levels (i.e., declining to €75bn and €17bn, respectively). We also account for a likely reduction in the size of the ECB’s SMP, CBPP1 and CBPP2 portfolios, as bonds mature."
"Against these items, Quarterly TLTROs should provide for a net liquidity addition."