As Expected, BOE Added More Stimulus while ECB Stood Aside

The BOE expanded the asset purchase program by +50B pound to 325B pound and left the Bank rate at 0.5%. As mentioned in the policy statement, 'the underlying pace of recovery slowed during 2011, with activity falling slightly during the final quarter. While policymakers noted that 'some recent business surveys have painted a more positive picture and asset prices have risen', the pace of expansion in the country's major exporters 'has also slowed and concerns remain about the indebtedness and competitiveness of some euro-area countries'.

Concerning moderation in Inflation, the BOE stated that it should continue to 'fall sharply in the near term, as the increase in VAT in January 2011 drops out of the twelve-month comparison'. Inflation is then' likely to decline further as the contribution of energy and import prices diminishes, while downward pressure from unemployment and spare capacity continues to restrain domestically generated inflation'. As we mentioned in the preview, easing inflation rate should be a key reason for policymakers to expanding unconventional easing measures to boost the subdued growth.

Separately, the ECB left the main refinancing rate unchanged at 1%. Policymakers appeared to be more about the economic outlook. In the policy statement, the term 'substantial' was removed when describing 'downside risks to the economic outlook'. At the press conference, President Draghi said that 'hard' data have provided support the improved economic prospect. He also stated that the central bank was less pessimistic than the IMF's latest projections.

Concerning Greece, Draghi emphasized that the most important thing 'is the agreement'. On the PSI, the ECB said it heard that the different parties are close to an agreement. He also stressed that it's not the central bank's intention to 'violate the monetary financing provision'.

It's also announced that 7 out of 17 central banks within the Eurosystem are intending to widen the eligible collateral to permit additional forms of bank loans. This would expand the available collateral pool by600-700b euro. However, this would amount to only around 200b euro of new financing due to substantial haircuts.