Greek polls may stop ECB from offering QE: Nick Parsons

The forthcoming European Central Bank (ECB) meet on 22nd Jan may discuss a stimulus programme but it will probably delay announcing it. The reason is simple. The ECB cannot go ahead and purchase Greek bonds ahead of a general elections in that country, says Nick Parsons, Head of Research ( UK and Europe) at National Australia Bank.

Normally, central banks desists from taking monetary-policy actions ahead of elections. Speaking to CNBC-TV 18 on the phone line from London, he said Greece is contemplating moving out of EU, and in affect, this could delay the QE programme, which is playing havoc with investor sentiment.

Below is the transcript of Nick Parsons's interview on CNBC-TV18

Ekta: What is the likelihood of ECB easing soon and if so by when and how much?

A: The ECB's decision is complicated. Let us remember that they no longer have monthly meetings. They moved into line with the US Federal Reserve and they are going to have a meeting every six weeks. Now the forthcoming ECB meeting is therefore going to be on the 22nd January but of course on 25th January we got general election in Greece.

So potentially the ECB is up against a very difficult situation where it may claim that it is going to offer to buy the bonds of a country which potentially maybe leaving the Eurozone very soon thereafter. Equally if it decides it is not going to buy them it could be accused of interfering in the democratic process in Greece. So we are going to see ECB talk about a forthcoming QE program on 22nd but without any definite announcements and in that sense investors and markets are likely to be disappointed.

Reema: How worried should we be about the possibility of Greece actually exiting the EU? We have heard these things, in the past also there were chances where Greece could have exited but by the end of it, it had managed to stitch together a deal and stay in the EU. How worried should we be this time?

A: We had a very long discussion internally yesterday. You could make a plausible case that a Greek exit from the single currency would actually remove some or one of the greatest sources of problems. It would ultimately make the euro stronger and to the extent that it could potentially lead to a very difficult economic situation in Greece in the near term it could remind other countries of their obligations to stay within the Europe.

So, that is looking at it on the positive side. But of course as the economy soars on the other hand what it may well do is set a template for other currencies to leave the Europe most notably Cyprus or maybe one of the large Mediterranean countries. Of course it would have already established the principle that the Eurozone membership is not irrevocable to use the language of the treaties.

So it is a fairly evenly split decision as one of those things upon which reasonable people can disagree and do so quite conclusively. But it is just something that each individual has to make judgement on for themselves. One thing we can say with absolute certainty, however, is that it is going to be a source of concern for the next three weeks.

Ekta: If you have to see Brent crude in the near term at a certain level what would it be and similarly for the dollar index. Where do you see Brent crude to bottom and where do you see the dollar index going?

A: We will see Brent crude touch USD 40/barrel before it goes to USD 70/barrel. But it is quite likely that we will see oil prices over the course of the next six months and for the DXY which is currently trading on 92 week figure the dollar index it was almost 92, 91.39. We think it is going to be above 92 by the end of this first quarter. So, strength in dollar continues.

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