ECB adjusts its asset purchase program

In addition to the rate cut in the deposit and activating the OTM program, adjustment in the moralities of the existing asset purchase program by making full use of its built-in flexibility is another option for the ECB. The Governing Council might decide to (temporarily) deviate from its target of buying EUR 60bn worth of assets per month, or to expand the list of eligible assets. 

On May 18, Executive Board member Benoît Cœuré announced that the Eurosystem could 'moderately' frontload its purchase activities in May and June to make up for the summer lull. More recently, the ECB also expanded its list of eligible agencies to include a number of infrastructure-related (semi-)public sector entities.

"If the ECB wants to signal its firm commitment to keeping (the rest of) the Euro zone whole and bringing inflation back to its 2%-target, it may decide to speed up its asset purchases. Although it will stick to its ultimate goal of EUR 60bn/mth and purchasing the sovereign bonds in proportion to the capital key, it has some short-term flexibility that it could use to stabilize Member States' bond markets", said Rabobank in a report on Thursday. 

The ECB is likely to expand its list of assets under this purchase program, and probably it may include bank bonds also. If expanding the shopping list is not enough to calm down markets, the ECB could also change the rules of the PSPP program, adds Rabobank.