Analysts warn Eurozone bank will disappoint
MARKET watchers expecting plans for bold monetary intervention from the European Central Bank (ECB) on Thursday are likely to be disappointed, analysts warn.
“We expect the Bank to disappoint markets by providing only details about how it might buy bonds in future, instead of a grand plan for immediate and massive purchases,” said Jennifer McKeown and Ben May at Capital Economics.
Eurozone stagnation and economic weakness, combined with the sovereign debt crisis, have driven many to expect bold and immediate monetary action from Eurozone policymakers at the ECB, which is led by Mario Draghi.
But analysts are sceptical their high hopes can be fulfilled. They warn that Bundesbank president Jens Weidmann’s claim he has considered following his predecessor by resigning may sway ECB members against intervening in sovereign debt markets.
Commentators also say plans are likely to stop short of setting explicit rate targets.
“Officials will surely consider levels beyond which they will intervene,” said Philip Shaw at Investec, “However publicising these would potentially expose the ECB to intervening in unlimited quantities.”
Though economic rot has spread from the periphery to formerly healthy economies, analysts also expect the ECB to hold fire on rates, as inflation is slightly above target.
Shaw said he did not think a rate cut was impossible – but that it was unlikely at this point in the year.