Draghi to reassure financial markets as ECB plots exit course
Frankfurt, Germany – European Central Bank (ECB) president Mario Draghi will seek to soothe financial markets at a policy-setting meeting on Thursday, analysts predicted, while at the same time carefully preparing the ground for an eventual shift away from easy-money policy later this year.
Most observers expect the Frankfurt-based institution to 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 € 60bn 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 policy- makers 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.
Despite the risks, the ECB ‘will probably be prepared to accept a moderate financial market impact now in order to avoid much sharper moves when the time to taper finally comes’, economist Jennifer McKeown of Capital Economics said.
That could see Draghi renewing his optimistic assessment of eurozone prospects on Thursday, but refraining from more concrete changes for the moment, she argued.