Draghi to calm waters ahead of easy-money exit
FRANKFURT AM MAIN: European Central Bank chief Mario Draghi will carefully prepare markets for a long-awaited end to the institution’s easy-money policy yesterday, analysts expect, but stop short of calling time immediately.
Most observers predict the Frankfurt-based institution will chart a path to the exit from its ‘quantitative easing’ (QE) mass bond-buying programme at one of its four remaining meetings in 2017.
That will make a press conference on Thursday “a balancing act that requires all of Draghi’s verbal acrobatic skills,” said analyst Carsten Brzeski of ING Diba bank, as the ECB must prime the markets for an end to QE, but also be careful not to sow panic.
Along with historic low interest rates and cheap loans to banks, the ECB’s monthly purchases of 60 billion euros (US$69 billion) of government and corporate bonds are designed to pump cash into the economy, powering growth and pushing up prices.
While inflation is still sluggish, economic growth in the 19-nation eurozone has picked up strongly enough to dispel the fears of deflation that had prompted policymakers to launch the scheme.
And the ECB could soon reach technical limits to its bond buying that will make the already controversial programme even more difficult to continue much beyond the present cut-off point in December.
Such signs mean investors are on high alert for signals from the central bank, sensitive to even the tiniest changes in governors’ carefully-weighed statements on “forward guidance”.
At a meeting in June, policymakers chose to remove a suggestion that interest rates could be lowered still further if necessary from their regular statement.
That was seen by many as the first hint that the ECB would begin adjusting its policy as economic growth gathers pace. — AFP