Yesterday I was asked the question of how the markets were taking into account the QE operation that could be announced by the ECB at its Thursday meeting
My feeling is that there is a doubt on its effectiveness in the medium term. The measure of providing liquidity is a monetary policy measure taken in a liquidity trap context as ECB interest rates are at 0%. The objective of this new instrument is to curb the profile of activity and prices on the upside.
The profile of 5 year in 5 years* interest rate continues to dive despite the increased certainty of an announcement on 22 January.
This anticipation by investors is not satisfactory since the 5 year in 5 years rate is just over 0.8%. If the medium-term equilibrium interest rate reflects the trend of nominal GDP growth. The current level shows that there is no anticipation of rapid and long lasting recovery instead this rate would have been oriented on the upside.
The ECB has not convinced investors that the QE will be the Silver Bullet
* The 5 year in 5 years interest rate reflects the expectation of the interest between the current 5 year rate (known) and the current 10 year rate (known). It starts in 5 years for 5 years