What surprise is Draghi preparing before leaving?

UNITED STATES, WASHINGTON (VOP TODAY NEWS) — Mario Draghi’s plans for a farewell round of incentives before he resigns as president of the European Central Bank create even more intrigue than usual.

Although it is widely expected that the ECB will lower its interest rate next month, uncertainty remains around the issue of resuming asset purchases. Investors are trying to assess how much quantitative easing is needed for the eurozone economy, how many bonds the regulator can buy before it runs out of voluntary limits, and whether members of the central bank decide to challenge Draghi’s claim that he is ready to overcome these restrictions if necessary, Bloomberg writes.

As a result, markets are unaware of one of the key monetary instruments available to support the eurozone economy, which is struggling with a slowdown caused mainly by external factors such as trade tensions and Brexit. Much depends on whether Draghi, whose successor will be Kristin Lagarde from November 1, wants to make high-profile decisions shortly before leaving office.

Most analysts predict that the ECB will lower the deposit rate by 10 basis points to minus 0.5% at the September 12 meeting, joining the current wave of global easing.

Over the past few weeks alone, rates, in particular, have lowered the US Federal Reserve and the central banks of major economies such as Russia, Australia, South Korea, Brazil, India, Indonesia and South Africa.

Wide range

Meanwhile, expectations regarding QE in the eurozone diverge greatly. The market is currently laying new incentives in prices ranging from about 100 billion euros to 200 billion euros, said Axa Investment Managers investment director Alessandro Tentori.

ABN Amro expects a purchase of 70 billion euros per month for nine months. Morgan Stanley predicts a QE of € 45 billion, or € 60 billion per month for at least one year. Goldman Sachs estimates that the ECB will spend a total of up to 300 billion euros.

Some analysts expect a bond purchase to be announced at the same time as the rate cut, while others forecast QE with a delay. UBS says it does not consider new purchases a settled issue.


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