Five Questions for Mario Draghi on ECB-Style Quantitative Easing By Alessandro Speciale - 22 ม.ค. 2558 07:01:01 Here are five things to watch for from Mario Draghi on Thursday. The European Central Bank president holds a press conference at 2:30 p.m. in Frankfurt, 45 minutes after the Governing Council’s announcement on interest rates. Will you or won’t you? The ECB’s Executive Board has proposed asset purchases of 1.1 trillion euros ($1.3 trillion) to rekindle inflation in the 19-nation region, and economists surveyed by Bloomberg News predict Draghi will announce quantitative easing. Any move would come after months of public sparring, mostly in the German media, and is likely to be opposed by Bundesbank President Jens Weidmann and Executive Board member Sabine Lautenschlaeger, the two Germans on the Governing Council. Sovereign-debt buying would complement purchase programs for asset-backed securities and covered bonds presented in September. So far, the ECB has spent about 35 billion euros under those plans. What will the ECB buy? The ECB’s QE proposal focuses primarily on government bonds, the largest and most liquid debt market in the euro area. Other assets such as corporate bonds or supranational debt issued by institutions such as the European Investment Bankmay also be included. Policy makers haven’t yet announced which quality criteria bonds have to fulfill to qualify. Options discussed include limiting purchases to assets rated AAA or those carrying an investment-grade rating of at least BBB-. Both choices would exclude junk-rated debt of Greece and Cyprus, although the countries may be granted an exemption as long as they’re under an international program. That puts the spotlight on Greece, where a bailout expires at the end of February and elections on Sunday might see the victory of a party campaigning on restructuring the country’s debt load. Size matters? Bond purchases of 50 billion euros a month through the end of 2016, as proposed by the ECB’s Executive Board, for a total of 1.1 trillion euros would be at the upper end of market expectations. The ECB committed to expand its balance sheet to 3 trillion euros in its bid to ward off deflation. The central bank currently has assets of 2.2 trillion euros, though that’s likely to shrink in coming weeks as almost 200 billion euros of crisis-era loans to banks mature. What’s the deal with risk sharing? Critics of QE say that pooling risks of government-bond purchases might violate European Union laws prohibiting the mutualization of debt. One way to get around those concerns would be to make national central banks responsible for any losses on the bonds they buy. This may also help reduce opposition to asset purchases in the Governing Council, increasing chances for Draghi to build consensus around his plan. While a non-binding opinion from the European Court of Justice on an earlier bond-buying plan signaled that purchases are legal, it also highlighted some limits to the ECB’s power. Will interest rates need to be tweaked? No economist polled in a Bloomberg News survey predicts the ECB will change its main rates. At the same time, the current deposit rate of minus 0.2 percent would mean the ECB asking banks to sell assets in exchange for cash, which it then charges them to hold. Pacific Investment Management Co. says the ECB should lift the deposit rate to zero to facilitate the functioning of money markets under QE.
Posted on: Thu, 22 Jan 2015 09:57:09 +0000
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