MARKETS

ECB boost to local bonds and banks

ecb-boost-to-local-bonds-and-banks

The latest announcements of the European Central Bank on inflation and the forward guidance on interest rates are securing, according to analysts, reduced borrowing costs through the end of 2024, with even longer prospects for an extension of quantitative easing.

Although an extension of the extraordinary QE program (PEPP) has not been discussed yet, markets are taking it for granted that it will stretch beyond next March, before being replaced by the classic QE program that will have an enhanced pace of monthly purchases of state bonds and new flexible features similar to PEPP.

The prevalence of favorable sentiment regarding the funding conditions is particularly beneficial for Greece and its banks, both in terms of market access and bond performance, and of the absorption of the huge amount of securitized nonperforming exposures promoted via the second state asset protection scheme (“Hercules 2”) as well as the drawing of liquidity on negative costs (TLTROs).

ECB chief Christine Lagarde said a PEPP extension has not yet been discussed and it would be far too early to talk about a reduction to the pace of bond buys.