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Draghi expected to unveil a huge new incentive plan



Mario Draghi, President of the European Central Bank.

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The European Central Bank (ECB) and its outgoing President Mario Draghi are caught in Catch 22: The market is expecting so many incentives on Thursday it seems almost impossible to surprise up.

The economy is showing further signs of weakness, inflation is not picking up, and the US-China trade war has no real purpose. So, what will the ECB do?

"We still believe that Mr. Draghi will gather a sufficient majority on the Board to go through a package that will include interest reductions and a restart of the asset purchase program," Dirk Schumacher, an observer of ECB with Natixis, said in a note to customers.

The meeting comes as some hawks of the ECB in recent weeks have been trying to diminish the chances of a huge stimulus package.

"Judging by (the) recent comments coming out of the Governing Council, there is no clear consensus within the Governing Council on the size and scope of potential relief measures."

The latest economic data suggests nothing special. positive, although the leading indicators have stabilized to some extent.Purchases of managers' indices for Europe show a stabilization, although the weakness persists in the industrial space.The question is whether and when the spillover of sects will occur. services and the labor market ̵

1; especially in larger economies such as Germany and France.

So, given this huge expectation that the ECB is facing, is there any room for rotation

"Potential surprises can they include extending the universe's QE (quantitative easing) to new asset classes (senior bank debt or equities) or more drastic changes to the QE parameters (removal of capital keys), "said Frederick Ducrozet, who oversees the ECB at Pictet in Geneva.

"The tape for such radical changes seems high, although next year we would not rule out anything in a less favorable scenario."

The ECB is expected to do the following in detail:

  • Reduce the deposit interest rate.
  • Repetition of monthly purchases of net assets.
  • Reinforcement of the previous guidelines by widening the horizon to keep interest rates current or lower beyond the first half of 2020. [19659014] Introduce a bank deposit tier system.
  • You raise your own bond issuance limit for government bond purchases from 33% to 40% or even 50%.

If we get this, it will probably be the most complete package ever by the ECB and a sign that the central bank has changed under new chief economist Philip Lane.

Although critics are growing stronger and stronger, questioning the effectiveness of further relief, Draghi – in his last few weeks as president – has been receiving more and more votes for weaker-than-expected inflation.

"As you know, inflation expectations have already been historically low for some time. So we have to take this into account. With recognition – and again this is very important – with recognition that we don't like it, "he said during the last press conference in July.

Probably now he is not much happier.


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