The ECB seems set to remain on standby this month. With just the announcement of its Outright Monetary Transactions (OMT) programme still buoying market sentiment, the Bank has yet to be called upon to act. But we think that the ECB will have to start buying Spanish bonds soon if markets’ relief is to be sustained. And President Draghi will stress at the forthcoming meeting that such action would have to be precluded by the acceptance of strong fiscal conditions by the Spanish Government. With the euro-zone’s economic outlook deteriorating further, the ECB might discuss other unconventional policies, particularly those aimed at boosting bank lending.
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