News analysis

Draghi looks to meet expectations in March

FRANKFURT • Once again, MrMario Draghi has given himself a month and a half to convince investors he will do what is needed to reignite consumer prices. This time he may hone the message more.

The European Central Bank (ECB) president's hint on Thursday that policymakers will bolster stimulus on March 10 raises the prospect of the Governing Council delivering another expansion to its €1.5 trillion (S$2.3 trillion) bond-buying programme, including potentially taking it into new asset classes.

Emphasising the ECB's ambition to reporters, Mr Draghi said there are "no limits" to how far officials will go to safeguard their inflation goal. The comments reflect the ECB's agreement to review its stimulus strategy of buying bonds and driving interest rates below zero. Mr Draghi is priming investors for seven weeks of expectation management until its March gathering.

"It's a bit like Groundhog Day," said Mr Carsten Brzeski, chief economist at ING-Diba AG in Frankfurt, reminiscing about the 1993 movie on recurring events . "The only question is, will he fulfil the dreams of markets this time around, or will he disappoint again?"

Mr Draghi's comments herald seven weeks of expectation management as officials hope to better guide some investors stung by the result of the last meeting of last year, when fresh stimulus fell short of predictions. Mr Draghi's challenge has become tougher. With an inflation rate that has not been near the goal of just under 2 per cent in three years, and China's economic slowdown increasingly dragging on global trade and disrupting markets, the 25-member Governing Council risks being seen as too slow and cumbersome.

Mr Draghi has once again given himself a month and a half to convince investors that the European Central Bank will do what is needed to spark consumer prices.

Economists at JPMorgan Chase and Royal Bank of Scotland Group changed their forecasts for easing to March from June following Thursday's press conference.

Barclays chief European economist Philippe Gudin wrote in a note that "the new package that we predicted for June could be presented in March", depending on developments.

Mr Draghi said the Governing Council did not want to discuss any specific instrument and that the ECB's technical committees would study options.

However, he did say that the central bank wants to be "absolutely confident that there are no technical limits to the size of its deployment". That raises the question of whether the ECB is willing to go down the same path as the Bank of Japan by adding new asset classes to its quantitative easing programme.

Yesterday, Mr Draghi reiterated his concerns about the outlook for euro-area inflation while speaking at the Davos summit in Switzerland, and said he is determined to reach his price-stability mandate.


A version of this article appeared in the print edition of The Straits Times on January 23, 2016, with the headline 'Draghi looks to meet expectations in March'. Print Edition | Subscribe