Quantitative easing going nowhere for now
22 June 2017 Berlin
Image: Shutterstock
There is no sign of a liquidity convergence within the eurosystem as Europe’s central banks signal their intent to press on with quantitative easing, offering attendees of the ISLA Securities Finance and Collateral Management Conference no timetable for when this so-called non-standard monetary policy measure might end.
The European Central Bank (ECB) left interest rates unchanged earlier in June and expects them “to remain at their present levels for an extended period of time, and well past the horizon of the net asset purchases”.
Its controversial non-standard monetary policy measure of net asset purchases, currently set at €60 billion per month, will run until the end of December 2017, or beyond. The ECB also “stands ready to increase the programme in terms of size and/or duration”.
Central banks have accepted that quantitative easing on this scale cannot last forever, particularly as studies have found that while the public sector purchase programme (PSPP) has succeeded in depressing bond yields, liquidity and repo rates have also dropped.
In response, European central banks made many of those assets available for securities lending. The International Capital Market Association (ICMA) backed this move in January.
An ICMA quarterly report said: “Holding securities within the PSPP naturally removes them from the market and it is only through the arrangements for securities lending that these holdings can then be made available to assist the market in meeting its operational needs. In consequence, collateral availability could decline, at a time when collateral demands are increasing.”
Market participants have responded positively to the securities lending facility, particularly following the decision to begin accepting cash as collateral.
But the parameters of the bilateral programme, which is conducted through Clearstream, remain strict in view of its aim to back-up financial markets rather than replace them.
The European Central Bank (ECB) left interest rates unchanged earlier in June and expects them “to remain at their present levels for an extended period of time, and well past the horizon of the net asset purchases”.
Its controversial non-standard monetary policy measure of net asset purchases, currently set at €60 billion per month, will run until the end of December 2017, or beyond. The ECB also “stands ready to increase the programme in terms of size and/or duration”.
Central banks have accepted that quantitative easing on this scale cannot last forever, particularly as studies have found that while the public sector purchase programme (PSPP) has succeeded in depressing bond yields, liquidity and repo rates have also dropped.
In response, European central banks made many of those assets available for securities lending. The International Capital Market Association (ICMA) backed this move in January.
An ICMA quarterly report said: “Holding securities within the PSPP naturally removes them from the market and it is only through the arrangements for securities lending that these holdings can then be made available to assist the market in meeting its operational needs. In consequence, collateral availability could decline, at a time when collateral demands are increasing.”
Market participants have responded positively to the securities lending facility, particularly following the decision to begin accepting cash as collateral.
But the parameters of the bilateral programme, which is conducted through Clearstream, remain strict in view of its aim to back-up financial markets rather than replace them.
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