LONDON (Reuters) - The European Central Bank is likely to extend its asset-purchase programme by up to two quarters into 2017 and buy an extra 360 billion euros of bonds as it tries to push up inflation, Goldman Sachs says.
ECB President Mario Draghi said for the first time last week that the 1-trillion-euro plus programme may run beyond September 2016 and that its size and composition may be adjusted.
That came after the ECB cut its euro zone growth and inflation targets, citing fading momentum in emerging markets, particularly China. It also warned that falling prices could drag the bloc back into deflation in coming months.
In a possible precursor to further moves, the ECB increased the share of any sovereign bond issue it could buy to 33 percent from 25 percent, provided that did not give the central bank a blocking minority among bondholders.
Goldman Sachs analysts said they expected an announcement on the details in coming weeks. Dutch bank ABN Amro strategists said an announcement was likely as soon as October.
“The extension of the QE policy we now forecast is between one and two quarters, which, at a pace of 60 billion euros per month, amounts to, at most, 360 billion euros, or around a third of the current programme,” Goldman analysts said in a note.
“Consistently, we think the shift in ECB policy mostly
supports higher quality EMU issuers, and will not have a material first-order effect on EMU spreads – on which we remain neutral.”
Under that assumption, they expect central bank purchases to absorb 80 to 85 percent of debt issued by Germany - the euro zone’s benchmark issuer - between now and the end of 2016 and 50 percent of French government bond issuance. Among peripheral bonds, they expect the ECB to absorb 42 to 48 percent of the gross supply of Italian and Spanish medium- and long-term bonds.
Reporting by Emelia Sithole-Matarise, editing by Larry King