Draghi to re­as­sure fi­nan­cial mar­kets as ECB plots exit course

Muscat Daily - - BUSINESS -

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.

Mario Draghi

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