MNI PREVIEW: ECB Seen Pausing For Draghi's Swansong

By Luke Heighton

     FRANKFURT(MNI) - Mario Draghi's final monetary policy meeting as European

Central Bank president on Thursday is unlikely to produce the same fireworks as

September's meeting, when the ECB announced a return to quantitative easing and

cut the deposit rate, prompting public dissent from some Governing Council

members.

     Here are key points to watch for at the meeting, at which no new monetary

policy decisions are expected:

     --Draghi is likely to stick to last month's assessment that eurozone growth

and inflation continue to disappoint, while risks remain tilted to the downside

amid signs that problems affecting the manufacturing sector are beginning to

affect services. Draghi will seek to defend the ECB's analysis that Europe

remains on course to reach its key inflation target of close to, but below, 2%,

albeit at a slower pace than previously anticipated. But the tone is likely to

remain dovish, with the ECB's new tiering operations and the tweaking of the

terms of TLTRO III cited as positive measures that will in time feed through to

the real economy, offsetting the effect of negative rates on banks' profits

while supporting growth through lending.

     Draghi may also refer to the fact that credit standards for non-financial

corporations have eased again, even though appetite for borrowing remains

broadly similar to the previous quarter, further supported by the re-starting of

the ECB's asset purchase programme, offering hope that the investment outlook

could pick up as the September package beds in over the medium term.

     --PACKAGE "MUST BE GIVEN TIME"

     --September's decision to introduce state-, rather than date-based forward

guidance reaffirmed the belief that the slowdown is here for the long-term.

Draghi may reiterate the usefulness of such a formulation in guiding market

expectations.

     --As ECB vice president Luis De Guindos told MNI in an interview earlier

this month, in order for the package announce in September to work, it must be

given time. Draghi will once again throw his weight behind each aspect of last

month's announcement, in spite - or perhaps even because of - the objections

raised by some of his national central bank counterparts.

     --September offered an unusually fractious meeting, and led to a strikingly

noisy period afterwards, as doves and hawks went public. De Guindos told MNI

that a period of silence is in order, while respect for the collegial nature of

the ECB's decision-making process should be paramount. Draghi will want to play

down the level of disagreement among Council members, while also hoping to

smooth the path for his successor, Christine Lagarde.

     --FISCAL CALL

     --Draghi will remind Europe's capitals - and Berlin in particular, that

monetary policy is not the only game in town, and that more fiscal stimulus is

required.

     --The outgoing president should also reaffirm that the Bank stands ready to

use all the tools at its disposal, and that there remains headroom for more

asset purchases if needed. He may indicate that examining new policy approaches

should form part of the forthcoming strategy review.

     -- Amid speculation that disagreement among Governing Council members could

hobble Lagarde's presidency, Draghi may remind his audience that last month's

decisions were passed by a clear majority of Council members, that the principle

of collective decision-making remains intact, and that unconventional monetary

policy has been a success - at least compared with the alternative

--MNI London Bureau; +44 203 865 3829; email: jason.webb@marketnews.com

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