Race To Bottom Enters Final Lap: ECB Will Cut To -0.7% In June, JPM Predicts

Tyler Durden's picture

Here is how global currency warfare and the global "race to debase" works: ECB cuts rates to -0.3%, the BOJ cuts to -0.1%, then the ECB cuts to -0.7% next. At least that's JPMorgan's most recent forecast, which now see Mario Draghi going full NIRPtard, and cutting the ECB's -0.3% deposit rate to -0.5% next month, and then to -0.7% in June, unleashing an epic deflationary tsunami around the globe, one which will send the USD soaring, will force more retaliation by the BOJ, will force more devaluation by the PBOC, will lead to more angry complaing by Deutsche Bank how easing is killing the bank, and so on.

When does it end? When fiat and modern neo-Keynesian economics are thoroughly discredited and when the world's central bankers end up with fast food worker jobs.

From JPMorgan:

ECB to ease even more and cut the deposit rate to -0.7%

  • We now expect the March package to include a larger deposit rate cut of 20bp, taking it to -0.5%
  • We now expect another package after that, possibly as early as June
  • We expect this second package to take the deposit rate to -0.7% and to extent QE until end-2017
  • Our forecast change is motivated by risk management amidst low inflation, rather than a macro forecast change

Until now, our expectation has been that the ECB would announce another policy package in March, comprising a 10bp cut of the deposit rate to -0.4%, an increase in the monthly pace of QE purchases by €10bn to €70bn/month, a three-month extension of the QE programme to mid-2017 and two additional TLTROs during 2H16. Beyond that, we have not been expecting any further easing, but we have been expecting the ECB to maintain a very accommodative stance for a long time, with the first hike only towards the end of 2019.
 
Today, we are changing this call. First, we now expect the March package to include a larger deposit rate cut of 20bp, taking it to -0.5%. Our expectations for QE and the TLTROs are unchanged. Second, we now expect further easing, possibly as early as June, with another 20bp deposit rate cut to -0.7% and another six month extension of QE at €70bn/month, taking QE through to the end of 2017. It is possible that the ECB will adopt a tiered deposit rate system as soon as March. But, even if it does not, we would expect a clear signal already in March that it will be considered later on; for example, the Governing Council could task the ECB's technical committees to look into it. And in any case, we would expect the ECB to adopt a tiered system by the time it cuts the deposit rate to -0.7%. As we have argued before, the ECB would be sending a strong signal by adopting a tiered system, which can be designed in a way that minimises some potential side-effects.
 
This forecast change is motivated by two factors. First, we continue to think that inflation will rise towards the ECB’s target more slowly than its staff expects. Second, the ECB will be more sensitive to this in an environment of persistent downside risk. Hence, our new call is mainly about risk management, as we are not making any changes to our macro forecasts. Admittedly, GDP has grown at a sluggish pace in 2H15, but the underlying pace was likely firmer. And, while the January business surveys raise some concern about the underlying pace, we are not currently convinced that there has been a real change in underlying economic conditions. But, from an ECB perspective, uncertainty about the global economy has increased even further, while recent financial market developments are surely uncomfortable (e.g., in terms of the trade-weighted currency, inflation expectations, potential pressures on banks, etc).

Hence, even if the ECB staff publishes the new inflation forecast for 2018 in early March, which we think could be at 1.8%, we believe the Governing Council will remain nervous about the outlook and respond quickly to gradual disappointments on inflation.

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TradingIsLifeBrah's picture
TradingIsLifeBrah (not verified) Feb 9, 2016 9:07 AM

These little moves have no effect.  ECB needs to shift that decimal place one to the right and then we'll see if this policy works

jaxville's picture

  These "little" moves are enough for a large depositor to get a bill rather than a credit for a their deposit.  I am sure the bank can offer the disgruntled client a product that has a positive rate of return.  Just have to lock in their funds for a few years...or decades.

 

SWRichmond's picture

Is "capital absorption by governments" the same thing as "capital destruction"?  Only if you're not on welfare, either elegant or otherwise, and you are some poor sod trying to earn an honest living in the productive private sector (or what's left of it).

Wait until they commandeer the 401(k)s to "save" them.

XitSam's picture

Can I get a 0.0% home loan?  The banks will still make money on this.

Offthebeach's picture

We all work in fiat labor brigades.

buzzsaw99's picture

i.e. full retard

Ghordius's picture

No, pitiful. JPM has, if you take this article at face value, not understood anything about the ECB's goals. They consider "moar of the same" the standard of CBs.

Has anybody any recall about how often the ECB has surprised those vaunted MegaBankster "analysts"?

It's a looooong way to June, anyway.

/stuart

Ouagadoudou's picture

Don't want no NIRP, better come with real full.blown QE + 30 bilion a month ..... That may trigger a  useless three months rally 

new game's picture

debase, devalue, de day coming..

Possible Impact's picture

If Debase and Devalue, then 'D-day' coming...

 

Either 1929 or WWII versions of 'D-day' may be appropriate.

(Oct 29, 1929 or June 6, 1944)

ArkansasAngie's picture

Fallacy of the false dilemma

There are alternatives 

 

KesselRunin12Parsecs's picture
KesselRunin12Parsecs (not verified) Feb 9, 2016 9:15 AM

It's incomprehensible that sheeps allow banksters to do this to them.

https://www.youtube.com/watch?v=i_y7YEIphts

Paul John Smith's picture

First, they debase.

Second, they free-base ... at Yellen's ... and then they take turns getting really drunk and having sex with her.

TradingIsLifeBrah's picture
TradingIsLifeBrah (not verified) Paul John Smith Feb 9, 2016 9:13 AM

I figured the free-basing started a long time ago

mayhem_korner's picture

 

 

I didn't think there was such a level of drunkenness.  Especially when you throw in the "take turns" part.

firstdivision's picture

That's it, Draghi will sign his own death sentence with such a move.  The ECB/EU will not survive 2016.

 

Dear Idiot CB's,

perhaps you should check in on how Iceland is doing.

Signed,

Not an Idiot.

 

Ghordius's picture

So cute, this "The ECB/EU will not survive 2016". Let me guess, you wrote something similar in 2015? in 2014? in 2013? in 2012? in 2011 for sure, didn't you?

/stuart

overmedicatedundersexed's picture

Ghordius, is that you, that avatar is new is it not?

new game's picture

economic survival is in the eyes of the results/peoples most affected by such policy.

greece comes to mind...

new game's picture

are expatriats moving to iceland?

Ghordius's picture

yes, the avatar is new, and Mr. Ghordius won't be writing anything on ZH for at least the next 40 days. He calls it a penance, we, his minions, call it a bet paid out

you are the former cop, aren't you? the one that was asking about Margot, if I recall properly

cheers /stuart

overmedicatedundersexed's picture

welcome stuart. you posting seems more to the point..Ghordius of old did have style and a great command of history.

Whiteblob's picture

i keep saying it but no body listens

 

BURN THEM

new game's picture

ot:o to release 4 trillion plus budget today, moar debase and  devalue coming...

wondering what the tax collections will be? 3 trillion? 20 trillion coming? is that a hat that needs to marketed? 20 trillion reasons to resist and not comply...

Bill of Rights's picture

" We had to BURN IT DOWN " to save it.

BandGap's picture

Sooooooo.......hoard a little more cash? Bank runs a-coming?

Seriously - who would go to a cashless society where the banks hold your account and can charge negative interest rates? Aren't the two mutually exclusive?

medium giraffe's picture

When you're flogging a dead horse, does it really matter if you stop to trim its toenails?

mayhem_korner's picture

 

 

Under NIRP, should we still call them "deposits"?  How about "personal bailout contributions"?

Ghordius's picture

mayhem_korner, it depends what kind of definition you use for NIRP

If you talk about a Central Bank milking a bank for the excess reserves it holds at the CB, the way it is done in Denmark, the eurozone, Japan, etc, then it's a kind of "bank bailout... payback"

That's the official and technically correct NIRP, as practiced in those countries

If you talk of the American version of it, which is roughly "bank accounts paying less then inflation", well, then it's a kind of "banker's highway robbery of customers, as usual"

/stuart

E.F. Mutton's picture

Increasingly desperate moves leading to increasingly diminishing returns.  They keep trying different band-aids when an amputation is needed.  Black Belt Double-Secret Full Retard.

new game's picture

next lvl of support 1830, pivot point, then 1806, 2nd pivot point, beyond is freefall depending on too many varibles to predict...

we are talking 9/18 day moving averages, interesting...

graspAU's picture

What does all this latest news mean to a pleeb? No Assets in stock market? If decent amount in savings accts, pay off any remaining debt (including mtg)? If small amount of other insurance, hold it tight? Top off the pantry with food and liquor? Ride the wave with lowest monthly expenses possible and hope you do ok?

yogibear's picture

Europe is attempting to revive the dead by more monetary policy.

There come a point where the QE starts to hurt the economy.

Hey, those refugees smelled your socialistic handouts and want them.

Wait until Janet Yellen, William Dudley and Jim Bulltard announce a larger QE4.

Bopper09's picture

What an insult to fast food employees.  Like a banker would ever 'cut it' as beng able to do any kind of actual work.

E.F. Mutton's picture

True.  I spent the first half of my life in Blue-Collar jobs.  The blue-collar man has to do what works, and relies largely on effort and common sense.  On the other hand, Barack Obama.

Son of Captain Nemo's picture

When does it end? When fiat and modern neo-Keynesian economics are thoroughly discredited and when the world's central bankers end up with fast food worker jobs.

Why would they deserve "fast food jobs"  Why not a date with destiny at the "end of a rope", or "firing squad"

Too generous!