A credit easing programme that did not help all the eurozone periphery countries would be less effective. This is where the ECB can adopt a more targeted approach to its own version of QE in a similar fashion to targeted LTROs.
The objective is still to expand its balance sheet, but for such expansion to have a more positive impact by reducing fragmentation in monetary transmission. What seems very likely is that the combination of TLTROs and outright purchases of ABS/CB/RMBS will not create the EUR1tn expansion in the ECB’s balance sheet.
Outright purchases of government bonds remain highly likely during Q1 2015. The ECB will first look to get the AQR/stress tests and the Dec TLTRO out of the way before turning its focus to government bonds.
When it comes to the balance sheet, things are moving in the right direction with an increase of €50bn seen between Sept 19 and Sept 26.
