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28 Nov 2014
What if oil bounces back? ECB QE may not happen after all - RBS
FXStreet (Bali) - Richard Barwell, Senior European Economist at RBS, makes a contrarian case in which Oil prices bounce back in the next 12 months, leading to the ECB QE being averted as inflation in the EZ picks up.
Key Quotes
"If oil prices do rally over the next 12 months taking headline inflation back to 1% and perhaps prompting a small rally in medium-term inflation expectations too, then it will be extremely difficult to satisfy ECB's Praet sufficient condition for ECB QE, and we suspect it may be hard to win sufficient support behind President Draghi’s call to arms, even though inflation would still not be close to 2%."
"In short, when people argue that ECB QE is inevitable but do not expect it to arrive until March or even June of next year it would appear that consciously or otherwise they are making a judgement call on more than just the capacity of the Council’s existing programmes to achieve its balance sheet aspiration, or for President Draghi to muster the necessary votes to launch QE. Those who believe it is a case of ‘when not if but just not yet’ are also making assumptions on the macro outlook over a three or even six month horizon."
Key Quotes
"If oil prices do rally over the next 12 months taking headline inflation back to 1% and perhaps prompting a small rally in medium-term inflation expectations too, then it will be extremely difficult to satisfy ECB's Praet sufficient condition for ECB QE, and we suspect it may be hard to win sufficient support behind President Draghi’s call to arms, even though inflation would still not be close to 2%."
"In short, when people argue that ECB QE is inevitable but do not expect it to arrive until March or even June of next year it would appear that consciously or otherwise they are making a judgement call on more than just the capacity of the Council’s existing programmes to achieve its balance sheet aspiration, or for President Draghi to muster the necessary votes to launch QE. Those who believe it is a case of ‘when not if but just not yet’ are also making assumptions on the macro outlook over a three or even six month horizon."