Smooth-talking Draghi hopes to keep lid on euro strength
FRANKFURT AM MAIN: A euro at three-year highs against the dollar will have financial markets hanging on European Central Bank president Mario Draghi’s lips, pressuring him to play down talk of reducing stimulus to the eurozone economy.
Top central bankers know the end is in sight for massive support to the 19-nation eurozone.
But the ECB’s governing council meeting in Frankfurt will bring another round in the battle over how quickly to wind down mass bond-buying and ultimately raise interest rates.
Analysts expect Draghi to play down details from the minutes of December’s meeting, which revealed governors plan to “revisit” policy early this year.
The line in the usually bland document put financial markets on high alert, helping to send the euro to its highest level since December 2014.
The ECB’s almost 2.3 trillion euros (US$2.8 trillion) in purchases of government and corporate bonds, cheap loans to banks and historic low interest rates have aimed to stoke eurozone growth and boost inflation towards its target of just below 2.0 per cent.
Growth has indeed picked up – estimated at 2.4 per cent in 2017 – but inflation stood at just 1.4 per cent in December.
In what the Frankfurt institution says is a side effect – but critics allege is by design – it has also suppressed the value of the euro against other currencies, stoking growth by encouraging exports and inflation by making imports more expensive.
A pricier euro could slow the ECB’s quest to complete its mission, although some analysts argue there is little it can do to brake the currency’s rise.
“Because the economic cycle is accelerating in the eurozone, it is rational to expect the euro to continue to rise gradually” to as high as US$1.25 or even US$1.30, Societe Generale economist Alain Bokobza told journalists in Frankfurt Wednesday. — AFP