Mario Draghi to resist pressure on more hawkish tilt towards quantitative easing
Economists expect European Central Bank (ECB) president Mario Draghi to hold back from any major changes in communication on Thursday after policymakers update monetary policy.
The European economy has continued to perform strongly, but the ECB has so far not signalled any desire to end its monthly €30bn (£27bn) asset purchases before September as currently planned, or to raise interest rates.
Eurozone growth hit its strongest in a decade in 2017, in an improvement which ECB officials have repeatedly put down to the extraordinary amount of stimulus offered by the central bank to try to keep the economy afloat. The ECB’s headline interest rate has remained at zero per cent since March 2016, along with the unprecedented quantitative easing bond purchases.
Read more: Mario Draghi says exchange rate volatility needs monitoring as euro surges
Anatoli Annenkov, an economist at Societe Generale, said Draghi will focus on “keeping expectations of a first rate hike at bay” after a bout of market volatility last month which was prompted by fears that higher inflation could prompt faster central bank monetary tightening.
However, Marius Daheim, senior Eurozone strategist at Swedish bank SEB, said the ECB could try to tread a tightrope with investors, dropping its bias towards more quantitative easing at the same time as warning that interest rate hikes are far off.
Read more: Eurozone inflation dips back down to give ECB further cause to pause
He said: “In the current market environment, changing forward guidance even only marginally could trigger spikes of volatility which may be unwanted from a central bank perspective.
“Thus, if the ECB were to drop the QE easing bias as we expect, the resulting ‘weakening’ of QE-related forward guidance could be countered by a proportional strengthening of interest rates forward guidance.”
The message that interest rates will not rise at any point in the near future has been boosted by the still tepid inflationary outlook in the Eurozone. Inflation fell back to an annual rate of 1.2 per cent in February. Core inflation (which strips out more volatile components and is therefore seen as a more accurate measure of underlying inflationary pressure) remained at only one per cent.
Read more: Eurozone growth strongest in a decade in 2017