Zero or hero? Is it time for Mario Draghi to act and begin to wean the Eurozone off its emergency interest rates and the asset purchase scheme?
Will the ECB maintain its zero rate policy, when it announces its rate setting decision on Thursday, or will Mario Draghi raise rates, from the floor they’ve been on since early 2016? Will the ECB also begin to taper further its asset purchase scheme, currently running at €60b per month?
These questions will be answered at 11:45am London time on Thursday, when the ECB will announce its interest rate decision. The interest rate has been zero since March 2016, with the deposit rate (the rate you pay the bank to ‘look after’ your money), still at -0.40%, this is commonly referred to as “NIRP” (a negative interest rate policy). The ECB have also maintained an asset purchase scheme, quantitative easing by another name, at €60b per month, reducing it recently from €80b a month. Speculation maintains that the ECB will (very soon), have the ‘slack’ to increase rates.
Although with EUR/USD closing in on a high not witnessed since March 2016, whilst EUR/GBP is maintaining historical five year highs versus sterling, Mario Draghi, the president of the ECB and his colleagues who help set rates, may believe a rate rise in unnecessary, given the euro’s performance, versus its two main trading partners. With inflation in the single currency bloc still below the ECB’s 2% growth target, a rate rise would be unexpected by the majority of economists polled. Mr Draghi will thereafter explain the ECB’s rate decisions, during the press conference held at 13:30pm London time.
The traditional press conference will be just as closely monitored as the rate decisions, as during the various conferences conducted by central bankers investors often gain clues as to what the future holds through what’s termed “forward guidance”, roughly translated as forewarning that a policy change may be imminent, thereby avoiding spooking the related markets.