A Forex View From Afar

What To Expect Tomorrow From The ECB

Tomorrow, the market expects the ECB to reduce the Minimum Bid Rate by 50 basis points, down to 1%. Since the current rate cut cycle has begun, the ECB reduced the key interest rate by 275 points or 325 basis points if tomorrow’s projections come true.

Additionally, most market commentators have said that tomorrow the ECB will announce a new quantitative easing plan, to buy corporate debt. This assumption came after Mr. Lucas Papademos suggested such a move may come from the European Central Bank, echoing Mr. Trichet, which said at the last press conference that the bank is judging to implement new “unconventional measures”.

If the ECB will adopt this measure, to intervene in the corporate debt market, the euro might get some strong support. Until now, the ECB is the only major central bank that did not directly adopt a quantitative easing method, even though Mr. Trichet said that the bank actually may in the future.

The Chairman of the ECB referred to the measures to provide unlimited liquidity to the banking system from the Euro-area, instead of doing auctions, and in the same time increase the assets that it receives as collateral.

On a slightly different note, a Bloomberg report shows that the ECB might start buying Eastern European currencies, like the Polish zloty and the Romanian Leu, to help the regional economies recover faster. Over the last two quarters, or so, the local currencies’ plunge had been a real threat for the region’s economy. In case of a possible intervention, the ECB might avert a possible crisis in the region, something similar to what happened in 1998 in Asia.

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