The governor of ECB, Mario Draghi , along with other policy makers, are supposed to face a dilemma during the July rate decision meeting, where the bank is seeking to draw an exit path of the massive stimulation program in the absence of inflationary pressures. It is expected that the ECB board, led by Draghi, to maintain the three rate prices as is for the eleventh policy cycle in a raw on Thursday, and to maintain the asset purchases which will continue until the end of year. Despite that, economists are wildly expecting that Draghi will continue with extreme caution when addressing the press conference after the announcement.
After his comments in the Central Bankers Forum in Sintra, Portugal late June, and the market expectations of potential hawkish stance in the Bank’s policy, pushing the Euro to its highest level in a year against the USD. Dragi’s comments today should be carefully calculated and cautious to avoid this type of market turmoil called “Frenzy Taper”.
Analysts say that in a world with no inflationary pressures, the EBC will have to prove preparation for stress on economic arguments leaving the market participants with no ambiguity, which is a balanced work requires Draghi’s rhetoric skills. Economic experts wildly expect that Draghi and his colleagues will avoid any hints of gradual cut in the stimulations in September, when it is expected to have an announcement about a possible hawkish move for January after the end of the current cycle.
In the June meeting, ECB raised his forward guidance by dropping the rate bearish bias. Some analysts are expecting the bank to do this amendment on the guidance related to asset purchase program in July, and to refer that raising interest rates will not start until the stimulates are withdrawn. The ECB is expected to discuss this QE in the next meeting, but we think that they will only present slight development and remove their intention to increase the QE plans. Despite this, the ECB can add that they will reconsider part of the stimulation program in September meeting, when the bank is expected to update the inflation expectations.
The rate decision is supposed to be announced at 07:45 French Timing on Thursday from Frankfurt, and Draghi is supposed to have the usual press conference after the announcement at 08:30 local time. The current interest rate is at a record low at 0%, the deposit rate is at -0.4%. The margin facility rate is at 0.25%. It is also expected that the bank will maintain his 60 billion Euros monthly asset purchases until December 2017, which is started in March after reducing from 80 billion Euros.
The inflation in the Eurozone retreated to its lower level in 6 months at 1.3% in June, while the ECB aim is to keep it “lower, but close to 2%”. However, core inflation, connected to policies, rose to 1.1% from 0.9%, and at the same time, trust indicators, among others studies, are suggesting faster economic growth in the 19 countries block.