Thursday, 7 September 2017

It’s Draghi Time: What To Expect From Him?

Posted by Anonymous at 12:26 Labels:

The European Central Bank (ECB) is holding its September monetary policy meeting today and markets are feeling very anxious about possible announcement over the stimulus program.

Why? Because speaking at a conference in Portugal last July, ECB President Mario Draghi opted unexpectedly for a hawkish stance in monetary policy matters, hinting about possible adjustments to the regulator’s current quantitative easing (QE) programs.

“As the economy continues to recover, a constant policy stance will become more accommodative, and the central bank can accompany the recovery by adjusting the parameters of its policy instruments,” said Draghi.

Since the last monetary policy meeting in July, the euro has gained nearly 2.4 percent against the US dollar, adding serious concerns for key exporting countries in the European Union, especially in Germany, the strongest economy in the bloc.

However, Draghi tried to moderate expectations in the last ECB meeting, saying the Governing Council would only begin to discuss potential adjustments to the current QE program in the fall.

And that decision was not a random one. In case of any monetary policy changes, the ECB wants to make sure the political scene in Europe is as calm as possible.

And precisely that is why this month’s meeting is likely to end with no changes to the current monetary configuration. Germany will celebrate Federal elections later this month and despite the fact euro status quo is expected to retain the power, the far-right still represents a risk.

What to expect from Draghi?

It’s easier to say what not to expect from him. Do not expect any monetary policy announcements in terms of interest rates or reduction of QE programs.

Instead, focus in his rhetoric and how he refers to the future of monetary policy. Will the Governing Council review the current configuration? What about the euro strength? Is that an obstacle for the regulator? And inflation? Is it OK to adjust MPs in a low-inflation environment?

Also pay attention to the forecasts for inflation and growth for 2019, which are crucial for market participants. These reports could have a strong impact on market direction.

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