BofAML - Our ECB call: Lower rate and liquidity for lending

Bank of America Merrill Lynch - "We believe the ECB will strive to demonstrate that it can do more than cut rates but will stop short of QE, as there is no consensus over the tools to fight low inflation:

1. We believe the ECB will cut the refi and the deposit rate to +10bp and -10bp max, respectively, with a view to capping the exchange rate appreciation. We expect the ECB to announce a plan to support credit, a term funding scheme that would differ from the previous LTROs in four ways: it would be conditional on lending; the rate would be fixed; it would be open for a finite period of time and of a limited amount; and the maturity would be 2 to 4 years.

2. We believe the ECB will announce its desire to revive the securitized markets through lower regulatory capital requirements and credit enhancement provided by national entities; we believe this will do less to support credit and more to enhance liquidity provision (such products would benefit from a low haircut), paving the way for QE eventually, if needed."

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