ECB to focus on bond-buying exit
FRANKFURT AM MAIN: European Central Bank President Mario Draghi will press ahead with his exit from massive stimulus on Thursday, analysts expect, playing down multiplying threats to economic good times in the eurozone.
The list of potential pitfalls runs from a growing intra-EU row over the Italian budget to increasing risk of a no-deal Brexit, trade tensions with the United States, turmoil in emerging markets, rising oil prices and jumpy economic indicators.
A major upset could threaten growth in the eurozone — and the ECB’s years-long quest for its goal of inflation steady at just below 2.0 percent.
The official account of September’s governing council meeting showed some members felt “a case could also be made for characterising the risks to activity as now being tilted to the downside”.
While Draghi ultimately stuck to his judgement that positive and negative risks were “broadly balanced”, the record demonstrated discord among the 19 national central bank chiefs and six board members who set policy.
For ING Diba bank economist Carsten Brzeski, “even though recent developments have been anything but encouraging, the downside risks are simply too minor and too premature for the ECB to alter its chosen path”.
Draghi acknowledged last month that some threats “have become more prominent recently”.
But he told European Parliament lawmakers he was confident of hitting ECB forecasts showing 1.7 percent average price growth between 2018 and 2020.
Capital Economics analyst Jennifer McKeown pointed out that “events since the ECB’s last meeting might have led it to reassess the downside risks to (economic) growth, but not necessarily inflation”, which is influenced by longer-term factors like wage increases.
Policymakers’ confidence for inflation has prompted gradual steps towards ending mass purchases of government and corporate bonds, known as “quantitative easing” (QE).
Launched in March 2015, the scheme is designed to pump cash through the financial system to firms and households, powering growth and, in turn, inflation.
From 30 billion euros ($34 billion) per month, the ECB has throttled bond-buying to 15 billion euros per month between October and December, when it is slated to end.
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