Instant view: ECB keeps liquidity taps on, quiet on bond buying

FRANKFURT (BestGrowthStock) – The European Central Bank said on Thursday it would keep unlimited liquidity in place well into next year as the euro zone debt crisis rages unabated but made no commitment to step up the pace of its bond-buying program.

Following are comments from analysts.

KLAUS BAADER, SOCIETE GENERALE

“It’s a huge disappointment … our expectation was that it was unlikely that he would announce a bond purchase program, but at least there would be a chance that he would indicate that the ECB does plan to step up its bond purchases through the existing structure, the SMP.

“But he hasn’t even done that. He kind of hinted at it by saying that the purchases would be calibrated by the market conditions. That’s kind of an indication that if you get a lot of tension, they’ll be buying more. … But there’s no quantum leap, that’s for sure. There’s not even a little hop.”

MARIE DIRON, ERNST & YOUNG EUROZONE FORECAST

“The ECB has stopped short of announcing new non-standard measures. Mr Trichet yesterday left the door open to further purchases of government bonds. However, the ECB will likely decide on these as and when it sees fit rather than by planning a much more substantial bond purchase program. In particular, the ECB is unlikely to shift to unsterilized purchases, thereby greatly diminishing the economic impact of this instrument.

“The updated ECB forecasts are in line with our views. However, at the current juncture, stating that risks are ‘slightly tilted’ to the downside greatly understates the true extent of downside risks. There is a risk of a full-blown crisis whereby contagion affects all peripheral countries and possibly moves to some core countries. In that scenario, the current measures, be it from the ECB in terms of bond purchases or from the EU in the form of the EFSF, would not be enough. There is a risk that, by not seeing the full extent of downside risks, the ECB does not prepare adequately for a new crisis by planning for much more significant monetary support.”

NICK KOUNIS, ABN AMRO

“Overall, the ECB has once again reversed its exit strategy but — in contrast to rumors — does not seem set to embark on a large-scale government bond purchase program.

“It is continuing with its bond purchases, but the impact will continue to be sterilized. In our view, the desire to sterilize will limit the size of bond purchases. So, although the pace of bond purchases will probably increase compared to recent weeks, we do not think we will see the large-scale program that some market participants were hoping for.”

Instant view: ECB keeps liquidity taps on, quiet on bond buying