ECB to unveil details of QE programme, discuss Greece
THE European Central Bank will unveil the details of the bond purchase programme it is embarking on later this month at its next meeting, but is unlikely to announce any new policy measures, analysts said.
Greece is also likely to be at the top of the agenda, following the recent eurozone deal to extend aid to the debt-wracked country, the ECB watchers said.
The ECB’s decision-making governing council will hold its meeting on Thursday in Nicosia, Cyprus, instead of the usual venue of Frankfurt.
But after revealing its plans for so-called quantitative easing (QE) in January, the meeting will focus on fleshing out the details of that programme, rather than announcing any new measures, analysts said.
“The ECB is unlikely to announce any new policies as it prepares to implement the quantitative easing programme,” said Jennifer McKeown of Capital Economics.
At its first meeting of the year last month, ECB chief Mario Draghi announced a programme to buy 60 billion euros ($68 billion) of private and public bonds each month starting in March until at least September 2016 in a bid to ward off deflation in the euro area.
“At the first meeting after its QE decision –- and only a few days ahead of the actual start of government bond purchases -– we believe the ECB will adopt a wait and see policy,” said Commerzbank economist Michael Schubert.
At his post-meeting news conference, Draghi “is likely to stress that the QE programme is ‘open-ended’. By doing so, he will keep alive market speculation of further measures,” Schubert said.
“However, he is also likely to emphasise that the purchases starting in March will first have to show their effect.”
The ECB will also publish Thursday its latest updated growth and inflation forecasts for the 19 countries that share the euro.
ECB vice president Vitor Constancio has already signalled that the growth forecasts would likely be revised upwards, as the eurozone economy benefits from the cheaper euro, falling energy prices and the positive effects of economic reforms, said UniCredit analyst Martina von Terzi.
By contrast, the 2015 inflation projection was likely to be slashed once again, owing to much lower oil price assumptions, said Deka Bank economist Ulrich Kater.
BayernLB economist Johannes Mayr said the projections “will for the first time take into account the anticipated effects of the QE programme and therefore might provide a clue about the likelihood of additional bond purchases beyond 2016”.
Since Draghi unveiled the QE plans, the euro has continued its decline against the dollar and yields on most eurozone government bonds have fallen.
“This must all owe something to the prospect of quantitative easing,” said McKeown at Capital Economics.
Nevertheless, given that the ECB’s planned QE programme was only half the size of the total programmes of the US Federal Reserve and the Bank of England, there was still need for bolder support, the expert argued.
As was seen in the first-ever publication of the ECB’s minutes last month, the opponents of QE — including the head of the Germany’s central bank Bundesbank Jens Weidmann — did not think deflation risks were strong enough to warrant a wide-scale programme of sovereign bond purchases.
“This suggests that the ECB will continue to tread relatively carefully,” McKeown said. “We doubt that the policy will be expanded unless the inflation outlook deteriorates markedly and hence we suspect that its effect will be very limited.”
Following the recent head-on battle between Greece and its international creditors on the terms of its bailout programme, Greece would be another topic on the agenda of Thursday’s meeting, analysts said.
Greek banks are dependent on the ECB for financing. But the central bank has said it no longer accepts Greek sovereign bonds as collateral for loans, meaning they now rely solely on emergency liquidity assistance (ELA), which is more expensive than normal central bank refinancing operations.
And until the new left-wing government in Athens agrees definitively to remain within the bailout programme, ELA financing looks likely to be the only lifeline for Greece’s banks.
The ECB said that while Athens’ list of proposed reforms was “a valid starting point” for a debt deal, it noted that the pledges “differed” from existing programme commitments in a number of areas.
“It seems clear that the ECB is taking a pretty tough line with Greece and Draghi’s comments are likely to underline that,” said McKeown.
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