ECB's likelihood measures to improve euro area financial conditions

As the financial and monetary condition of euroarea are deteriorated, more measures are likely to be deployed by ECB before year-end. Barclays notes, ECB states in the last press conference: "If any factors were to lead to an unwarranted tightening of monetary policy, or if the outlook for price stability were to materially change, the Governing Council would respond to such a situation by using all the instruments available within its mandate".

The ECB likely to announce QE program, assets buying program, and further deposit rate cut, but all these factors may not be sufficient to trigger the announcement of additional monetary easing measures next week. 

In addition to the above measures, Barclays argues for following measures in order to improve the financial and monetary conditions of the euro area.

• A six- to nine-month extension of the monthly EUR60bn QE program, from the previously stated "at least until September 2016" is required. Along with this, the ECB could also extend the fixed rate full-allotment procedure (FRFA) from end 2016 until end 2017. These measures would further dampen medium-term interest term rates. Moreover, other possible measures such as increasing the size of monthly purchases or the type of assets have less clear advantages. 
   
• Less likely for next week, but probably a more effective monetary policy measure to lean against an unwanted euro appreciation, would be a further cut to the deposit rate, currently at -20bp. If the euro continues appreciating, then the ECB would likely announce a further cut, possibly by 10bp to -30bp, before year-end.