(Reuters) – There is now an even chance the European Central Bank will buy sovereign bonds, according to a Reuters poll of traders taken after the Bank of Japan shocked markets by unexpectedly expanding its already massive asset buying programme.
“The move by the BOJ is likely to put more pressure on the ECB to ease policy as well,” said one trader at a large dealer. “Both central banks want to boost inflation, and cheapening their currencies by flooding markets through massive asset purchases is one of the ways.”
Euro zone money market traders gave a median 50 percent chance of ECB sovereign debt purchases, up from 40 percent in a similar Reuters poll on Oct. 13.
A majority of those traders said if the ECB does decide on government debt purchases then it is most likely to happen in the first half of 2015.
Preliminary data on Friday showed annual inflation in the bloc nudged up to 0.4 percent but by remaining firmly in what the ECB terms the “danger zone” it did nothing to alter expectations that the central bank could still ease policy in coming months.
“Things are improving less than what the ECB had hoped for and if they really want to do something then it (sovereign bond purchases) is their last option,” added the trader.
In an interview posted on CNBC’s website on Friday, ECB Governing Council member Ewald Nowotny said the bank “never should say never” to full-on quantitative easing, but such a programme is not in sight at the moment.
Economists polled by Reuters last week said the ECB will need to expand its balance sheet by around 1 trillion euros for a stimulus programme to be effective in boosting inflation, but the central bank may find it difficult to reach that target.