Traders say ECB QE is a given, but split on the timing

[LONDON] The European Central Bank might announce a sovereign bond buying programme as early as next week and will certainly have done so by March, according to all but one of the 20 euro money market traders polled by Reuters on Monday.

Expectations the ECB will start printing money through quantitative easing (QE) are driven by data from last week, which showed eurozone inflation turned negative in December for the first time since 2009.

Italy's central bank chief, Ignazio Visco, who sits on the ECB's Governing Council, warned on Sunday the risk of deflation in the eurozone should not be underestimated and buying government bonds is the best way to deal with the threat.

The ECB is considering a hybrid approach to government bond purchases before its Jan. 22 policy meeting, sources familiar with the discussions have told Reuters.

But traders in the poll were split on the timing of such an announcement. Eight of 19 forecast the ECB will announce sovereign debt QE as early as this month.

"Immediate - they have to go for it this month," said a trader at a large dealer. "Unfortunately, oil was not in the ECB's calculations, and it is taking inflation very low. Since they mentioned QE before oil prices dropped so much, they have to do it immediately."

The remaining 11 traders expect the announcement to come in March.

"It is a difficult step for the ECB to start the works on QE, which can be effective, as early as this month," said another trader. "It is not going to be as straightforward as it was for the other central banks. We still think it is going to take a couple more months for the ECB to finalise on the methodology before they can announce."

In early November, traders said there was an even chance the ECB would announce a sovereign QE program, most likely in the first three months of 2015. Only eight of the 18 traders surveyed then said the probability of such an announcement was greater than 50 per cent, but at the time eurozone inflation was 0.4 per cent.

In a Reuters poll last month, economists put at 70 per cent the probability that the ECB would begin a bond buying programme sometime this year.

The regular survey of 23 traders showed the ECB is expected to allot 105 billion euros at its weekly refinancing tender, slightly less than the 112.33 billion euros maturing this week.

The poll also showed banks are expected to repay 10 billion euros of the ECB's three-year crisis loans next week, less than the 14.2 billion euros they will return this week.

REUTERS