Draghi Says ECB Still Expects Net Bond Buying to End in December

(Bloomberg) -- European Central Bank President Mario Draghi said at least some of the slowdown in the euro area may be “temporary,” confirming that the institution remains on track to end bond purchases in December.

With policy makers meeting Dec. 13, analysts are focusing on whether weakening euro-area momentum and turmoil in Italy could scupper stimulus withdrawal or warrant some support measures, like new long-term loans for banks. Draghi, speaking at the European Parliament on Monday, noted that risks from protectionism, emerging markets and financial volatility remain “prominent.”

Key Insights

  • Draghi stressed that, despite disappointing data from PMIs and Germany’s Ifo, “recent developments confirm the Governing Council’s” outlook that domestic demand and wages will push up prices.
  • The end of new bond buying won’t mean the end of stimulus, Draghi said, in light of the reinvestment of maturing assets, guidance on interest rates and the 2.6 trillion euros ($3 trillion) of securities purchased by the ECB so far. Chief economist Peter Praet made the same point earlier on Monday.
  • Draghi also pushed for “concrete steps” on euro-area reforms in the coming weeks and months. The talks seem to have gathered some momentum again after months of stalling but it’s far from clear what, if anything, politicians will be able to deliver before European Parliament elections next year.

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  • Economists at JPMorgan and Barclays, among others, expect the ECB will offer new targeted longer-term refinancing operations in coming months to avoid a sharp drop in excess liquidity.
  • The noise from policy makers on the timing of the first interest-rate hike continues to be somewhat confusing: Executive Board member Sabine Lautenschlaeger said on Monday it could come in the or summer or autumn of 2019 while Governing Council member Ewald Nowotnywarned against keeping rates low for too long. Current guidance says rates will stay on hold “through the summer” of next year.

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