Greece, bond pur­chases top agenda of ECB meet


The Euro­pean Cen­tral Bank, bol­stered by the suc­cess of its con­tro­ver­sial bond pur­chase pro­gram, will pledge to keep it in place while down­side risks to eco­nomic growth re­main, an­a­lysts said.

The ECB’s de­ci­sion-mak­ing gov­ern­ing coun­cil is sched­uled to meet on Wed­nes­day but is un­likely to an­nounce any new pol­icy moves, cen­tral bank watch­ers pre­dicted.

In­stead, an­a­lysts said they would be lis­ten­ing out for what pres­i­dent Mario Draghi has to say about the ef­fec­tive­ness of the pro­gram so far and about the sit­u­a­tion in Greece.

“At its June press con­fer­ence, the ECB is un­likely to an­nounce any ma­jor new pol­icy mea­sures and will ar­gue that its past ac­tions are al­ready yield­ing re­sults,” said Ben May of Ox­ford Eco­nomics.

In March, the ECB em­barked on a pro­gram of so-called quan­ti­ta­tive eas­ing or QE, buy­ing up 1.14 tril­lion eu­ros in as­sets — at a monthly rate of 60 bil­lion eu­ros per month — un­til Septem­ber 2016.

The aim is to in­ject liq­uid­ity into the fi­nan­cial sys­tem and push up the eu­ro­zone’s chron­i­cally low rate

of in­fla­tion.

Ramp­ing Up Pur­chases

Ex­ec­u­tive board mem­ber Benoit Coeure caused a stir two weeks ago when he an­nounced that the ECB could “front­load” — or tem­po­rar­ily ramp up — the pur­chases prior to the sum­mer drop-off in liq­uid­ity.

“This has been in­ter­preted by many in the mar­kets as a state­ment of in­tent from the ECB to pre­vent yields from ris­ing to lev­els that could threaten the still rea­son­ably frag­ile eco­nomic re­cov­ery,” May said.

Draghi, prob­a­bly sat­is­fied by the im­pact of Coeure’s com­ments, could state that the change in plan was “merely a tweak for tech­ni­cal rea­sons,” the ex­pert said.

But he was un­likely to rule out more front­load­ing if the ECB per­ceived it to be jus­ti­fied by the un­der­ly­ing macroe­co­nomic back­drop, May ar­gued.

Ac­cord­ing to the min­utes of the gov­ern­ing coun­cil’s last meet­ing in April, while the cen­tral bank chiefs saw a case for “guarded op­ti­mism on the short to medi­umterm out­look for the euro area econ­omy,” they still felt it was im­por­tant “to re­main cau­tious” given the head­winds.

Hence, there is no talk of scal­ing back QE just yet.

“Against this back­ground, we ex­pect Draghi to re-af­firm... that the gov­ern­ing coun­cil in­tends to con­tinue its as­set pur­chases un­til the end of Septem­ber 2016” or un­til there was a sus­tained ad­just­ment in the path of in­fla­tion, said Jonathan Loynes of Cap­i­tal Eco­nomics.

pre­vail­ing eco­nomic

Hard Line on Greece

Greece is likely to be the other key talk­ing point at the meet­ing, given the ab­sence of any agree­ment so far be­tween Athens and its cred­i­tors, an­a­lysts said.

ECB chief Draghi at­tended a meet­ing of fi­nance min­is­ters and cen­tral bank gov­er­nors of the so­called Group of Seven coun­tries in Dres­den last week, where the ef­forts to ham­mer out a deal and pre­vent a dis­as­trous “Grexit” or Greek exit from the eu­ro­zone took cen­tre stage.

“We sus­pect that Draghi and col­leagues will main­tain a hard line on Greece,” said Loynes.

The ECB will also pub­lish Wed­nes­day its lat­est up­dated fore­casts for growth and in­fla­tion in the 19 coun­tries that share the euro.

In early May, ex­ec­u­tive board mem­ber Yves Mer­sch sug­gested the fore­casts might be raised, said Com­merzbank econ­o­mist Michael Schu­bert.

“But this is un­likely to oc­cur, given the rather dis­ap­point­ing eco­nomic in­di­ca­tors, a higher as­sumed oil price and a first-quar­ter growth rate that may be slightly dis­ap­point­ing from the ECB’s per­spec­tive,” Schu­bert said.

The eu­ro­zone econ­omy grew by 0.4 per­cent in the first three months of this year.

Ac­cord­ing to the ECB’s last pro­jec­tions pub­lished in March, eu­ro­zone growth was ex­pected to reach 1.5 per­cent in 2015, 1.9 per­cent in 2016 and 2.1 per­cent in 2017.

“But even with its pro­jec­tions un­changed, the ECB is prob­a­bly much too op­ti­mistic,” said Schu­bert.

“In con­se­quence, we still ex­pect that the ECB will not only fully im­ple­ment its QE pro­gram but also be more in­clined in case of doubt to ex­tend QE rather than ta­per­ing (or phas­ing it out) pre­ma­turely,” he con­cluded.

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