ECB’s Meeting: Draghi Will Not Stop To Remind That The Purchases Programme Is Flexible

The paradox of the ECB long-term refinancing operationsEuropean Central Bank's president Mario Draghi

Intermoney | The monetary policy meeting of the ECB on September 13th will reaffirm the path sketched out in June and ratified in the last meeting in July. At the beginning of the summer, Draghi already communicated the subordination of the strategy to the fact that the data was confirming the expectations for inflation, which would lead to a deceleration of the monthly rhythm of net purchase of assets of 15 million euros. After meeting, the July meeting was a procedure which served to make the message clearer, and to insist on the rollover of matured assets linked to the QE portfolio and dispel doubts about rises in interest rates, which will not happen before the summer of 2019, at the earliest.

In tomorrow’s meeting the route map already sketched out will continue and Draghi will confirm the expansion of purchases in the period of three months, from September to December of 15 billion euros compared to the current 30 billion euros. The Italian is known for his subtle play with words and ability to handle any type of event, so that he will not stop to remind us that the ECB programme is flexible when confronted by unexpected situations, which will mean that the “ammunition” will be ready for any surprises.

The subordination of the ECB´s future steps to the convergence of inflation with its target has been a constant in Draghi´s press conferences, but inflation has not met its targets which is why assets purchases have been maintained (albeit at a slower rhythm) and the focus put in 2019 to effect the first rises in interest rates. Although the preliminary estimates for CPI in August reflects a rate of 2% p.a. in the Eurozone as a whole, underlying prices decelerated one tenth to 1.2% p.a, in the same month.

Nevertheless, the ECB will not modify its plans unless it has clearer indications of moderation, to the extent that the data undermines the confidence in Frankfurt in convergence with the target; and this is shown by the price projections of the entity. Overall, the inflation forcasts Will remain without change and, if there is any nuance, it will come from the rises in oil prices and the greater weakness of the Euro, given that the exchange rate for the currency in June settled at 1.18-1.20 euros/dollar.

Regarding activity, the ECB is very conscience of the risks to consumption, as the data has been warning and as has warned Draghi himself in the past. The “just in case” is often raised by the Italian given that he has pointed out before that, in the event of a prolonged more modest performance in some economies, this would affect the figures in Q218. This could leade the ECB to lightly correct downwards the projections for 2018 and 2019 (2.1% and 1.9% respectively) because of the carry-over effect. Then, there would be some corrections which would agree with the consideration of the weaker indicators which have recently seen light.

The other interesting part will be the roll-over of matured assets in the portfolio linked to QE. Here, Draghi will insist in the roll-over during a prolonged period, stressing, in particular, “during the time which is necessary”. Draghi is unwilling to “burn his fingers” and will be clear on a question that has caused interest in previous meetings. In IM we have already pointed out that the most important that the ECB must transmit is the reaffirmation and confidence in the guidance which has been offered since June so as not to generate harmful speculation and unfavourable noise.