Ahead of today’s ECB press conference, here are the four things to watch for at the ECB meeting. Will the European Central Bank extend its QE program or not?
8 September, AtoZForex – As the Eurozone is facing difficulty in recovering its economy, the ECB rethinks its monetary policy approach that already includes record-low interest rates and prior-busting asset buyings. Ahead of the ECB meeting, the main issue put on the table is either to extend the rules for ECB’s 80 billion a month quantitative program or loosen them. Furthermore, the ECB’s governing council will review its latest economic forecasts, which haven’t been done since Brexit. Hence, it is a must for traders to pay attention to these four things to watch for at the ECB meeting.
1. Timeline for asset buying
If the ECB is attached to maintain interest rates on hold, the main benchmark refinancing rate will stay at zero and the deposit rate at minus 0.4 percent. Although it is not anticipated that the central bank will change its decision to buy €80bn of government bonds each month, from now until at least March 2017, some analysts consider the ECB could extend the timeline for asset buying beyond next spring. Whereas, others think that the central bank may prolong the announcement of this decision until October or December vote.
2. Extend quantitative easing or not?
Another reason for the ECB to postpone the decision to extend quantitative easing is to provide council member with extra time to discuss how the bank can loosen the rules to expand the universe of eligible bonds.
In case the quantitative easing prolongs beyond the spring, the bank will have to eliminate restrictions such as the minus 0.4 percent floor. As it limits the purchase of the most expensive sovereign debt. Alternatively, it could refrain from fulfilling its promise to purchase bonds of member states. However, both approaches pose a risk to induce the disputes between the governing council’s members.
Also: Watch today’s ECB press conference live at AtoZForex
3. Latest economic forecasts
Moving forward, the ECB council is ready to show its latest economic forecasts. The post-Brexit predictions for growth and inflation are anticipated to be weaker in comparison to the June forecasts. The June estimations predicted growth of 1.6 percent in 2016 and 1.7 percent in 2017 and 2018. Whereas, the inflation rate was estimated at 0.2 percent this year, increasing to 1.3 percent in 2017 and 1.6 percent the following year.
4. Exposure to political risks
Although the eurozone managed to resist the consequences of the Brexit referendum, its recovery is still subject to political risks in all four of the EU’s largest member states. Due to the UK exit from the EU, there is a possibility that access to Britain to the European market can be restricted, having a bad impact on export countries like Germany, Ireland and the Netherlands.
Due to the UK exit from the EU, there is a possibility that Britain’s access to the European market can be restricted, having a bad impact on export countries like Germany, Ireland and the Netherlands.
In the meantime, both Germany and France are having national elections the following year. François Hollande, France president is not very much supported in the country, whilst Chancellor Angela Merkel is also experiencing the decline in her popularity. Another member state, Italy, is experiencing political uncertainty as well. Matteo Renzi, Italy’s prime minister, stated that he would resign in case he fails to win a referendum on constitutional reform arranged for November or December.
Therefore, Mario Draghi may encounter questions on how the ECB will react to such issues in the forthcoming months.
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