The European Central Bank’s surprise plans for further monetary stimulus are positive for the euro area, but the immediate impact on the economy is likely to be limited, says Moody’s Investors Service.
In a new report, the rating agency says that the ECB’s latest rate cuts and plans to start an asset buying program next month, demonstrate a clear commitment by the bank to employing a range of policy tools to combat deflationary risks and boost growth. In particular, it notes that the new asset purchase programs could provide significant support to euro area businesses over the longer term.
“Banks could originate and securitise new loans, and then sell the securities on to the ECB or other buyers, boosting credit provision,” notes Colin Ellis, chief credit officer at Moody’s.
However, Moody’s also says that the extent to which these measures may boost growth will depend on the details. “The ECB will buy ‘simple and transparent’ ABS, but it is unclear exactly what that implies,” notes Ellis.
Similarly, the programs may involve a degree of co-purchasing with private investors, which means it would need to find private buyers who were prepared to engage alongside the central bank. And, Moody’s points out that the ECB has given no formal indication of the potential size of the asset purchases.
“Even with large-scale primary purchases, it would still take many months, if not years, before the euro area securitisation market became a significant alternative funding channel for businesses, given the dominant role of bank lending,” says Ellis. As such, it suggests that the immediate impact of the purchase programs may be small.
Additionally, it says that the need for new stimulus “highlights the continued economic and financial challenges in the region.”