Mario Draghi’s last meeting as ECB chief on Thursday may prove a lively gathering given a deep rift among policymakers over renewed asset purchases. After unleashing a wave of stimulus measures in September — including an interest-rate cut and a decision to restart asset purchases to boost the eurozone economy — no major announcements are anticipated.
“The biggest part of the meeting will be the farewell to Draghi,” said Pictet Wealth Management strategist Frederik Ducrozet. “This could be an emotional moment for him.”
At the same time, deep divisions have emerged among policymakers over reviving bond purchases, meaning the ECB chief’s final news conference may prove a heated affair.
Here are five key questions for markets. So, will the ECB do anything this week? Economists predict no major changes to the ECB’s post-meeting policy statement given a broad range of stimulus measures unveiled at the September 12 meeting.
Some expected Thursday’s meeting to be a largely ceremonial one to mark the end of Mr Draghi’s eight-year term, which concludes on October 31. But the ECB is also likely to be asked about the impact of its last policy measures given low inflation expectations and concern that the central bank is running out of firepower.
The latest stimulus package will not significantly help bring inflation back to target, according to a Reuters poll of economists who said the risk of a eurozone recession in the next two years has increased.
The ECB’s board is deeply divided, what does this mean for policy? Mr Draghi is likely to be pressed about the rift within the ECB Governing Council although economists say this is now an issue for his successor Christine Lagarde.
An unprecedented split, which saw more than a third of policymakers including the central bank chiefs of France and Germany oppose the new bond purchases, threatens the effectiveness of ECB monetary policy.
For markets, the divisions have added to a perception that the ECB’s room for maneuver is limited. “From Draghi’s point of view, he will say the discussions are important and there are differences but as long as there is a majority in favour, those policies are carried out,” said Anatoli Annenkov, senior European economist at Societe Generale.
And what about QE, could we get more details? The ECB will restart QE in November with €20bn of asset purchases a month. It may reiterate on Thursday that the scheme is likely to be broadly in line with the previous round, in which government bonds made up the bulk of purchases.
Could the ECB clarify its plans for tiering? At its September meeting, the ECB increased its charge on bank deposits to -0.5% to protect the eurozone from a global economic slowdown. But it also granted an exemption from that charge on any deposit exceeding six times a bank’s mandatory reserves through a so-called tiered rate on deposits.
While tweaks to the policy are not anticipated prior to the launch, investors are looking for the ECB to perhaps clarify its intentions. While many economists expect a December ECB rate reduction, money markets do not price in even a slim chance of 10 basis point cut before 2020.
What will be the message from Mr Draghi as his term draws to an end? Mr Draghi, who has steered the ECB through the eurozone debt crisis and the uncharted waters of QE, has ramped up his call on governments to use fiscal policy to boost the eurozone’s long-term growth and inflation prospects.
This message may be repeated on Thursday but more likely, say analysts, the ECB chief will want to end his news conference on a positive note.
“Unfortunately Draghi won’t have a track record on inflation, but he does have one on employment growth,” said Anatoli Annenkov. “His sign-off message is likely to be that things would have been much worse had the ECB done less.”