A weaker Euro area inflation outlook would trigger accelerated asset purchases

An even weaker short-term inflation outlook due to negative spillover effects from depressed global demand is likely to result in accelerated asset purchases. In such a scenario, around €20bn of additional asset purchases is expected per month by the end of this year, adding also corporate bonds. In a scenario of recession with deflationary risks, a more aggressive ECB is expected, adding up to €40bn to its monthly purchases, but with limited ability to maintain such a loose policy with the current issue share limits. 

"We expect the ECB to have some further room to raise the issue share limit, as indeed it has to include new assets, such as bank bonds, equities and even foreign assets, depending on how the exchange rate develops", says Societe Generale.

If a deflationary scenario expands over time, the ECB is expected to also consider cutting the deposit rate, adding more liquidity and trying alternative communication strategies, including rate guidance (Forward Guidance) and possibly explicitly allowing for a longer period to reach the inflation target. Changing the definition of price stability or discussing permanent increases in the balance sheet ('helicopter money') are mainly options in the very long term if everything else fails.