MNI SOURCES: Draghi Successor Could Affect Rate Hike Timing

--A Draghi Hike Could Take Pressure off Hawkish Successor, Source Says

     LONDON (MNI) - Mario Draghi says any speculation that the timing of his

departure next year could influence that of a rate hike could exist only "in the

perverse minds" of traders, but some of his monetary policy colleagues believe

the identity of his successor might well be a factor in the decision.

     If the next ECB president is a hawk, like the Bundesbank's Jens Weidmann,

he might find it convenient for Draghi to relieve him of some of the weight of

expectations by hiking first, one eurosystem source said. A more dovish

appointee might prefer Draghi to hold, the source said.

     Other sources contacted by MNI confirmed that the decision on when to hike

could be influenced by the succession, although two others disagreed.

     --SEPTEMBER HIKE?

     The outcome of the race for the next presidency will not be known for many

months, but the conclusion of Draghi's term, on Oct. 31, coincides quite closely

with the ECB's guidance for rates to remain at their present levels through the

summer of 2019.

     If the Italian were to leave a hike to the next chief, he would have served

his eight-year term without increasing interest rates once, a feat unmatched

even by dovish peers like the Fed's Ben Bernanke and the BOE's Mark Carney.

     "It's a personal decision - well naturally the data have to be in place -

about whether he wants to be the ECB president who saw off the crisis and then

completed the cycle by being the one who started policy tightening. Or it might

be good to have the new president make his mark by being the one to raise

rates," another monetary policy source said.

     If it is to be Draghi who pulls the trigger, the scheduling of the 2019

October governing council meeting - on the 24th, just a week before he leaves,

might argue for the deed to be done next September, the second source said.

     "He will decide as late as possible, anyway."

     Another eurosystem source agreed the question of whether the rate hike

calculus will be swayed by the proximity of Oct. 31 "definitely" depends on the

identity of Draghi's successor.

     "However the discussion will go in the future, we have a situation that,

based on the forward guidance and based on the decisions made up to now, that he

might succeed in not deciding on the first hike," said the third source.

     --FAVOURITES

     While Weidmann has been a long-term favourite for the presidency, recent

reports suggest he might have lost German government backing. Other

possibilities include Finland's Erkki Liikanen and the Bank of France's Francois

Villeroy de Galhau.

     Two other eurosystem sources said Draghi's departure was "irrelevant" to

any change to monetary policy.

     "Much speculation is being stirred over who will succeed him and whether

the rate hike decision will be taken while Draghi is still in charge, or left to

his successor. That's not the point: the rate hike and the president are two

separate things, with the former far more crucial than the latter", said one.

     Another official noted how "all Council members are professionals, and they

analyse the monetary policy needs objectively at each of their meetings", before

stressing that "I don't see any connection between the changes to the

organisation and the setting of the stance" for the rate hike.

     Draghi himself dismissed the idea, responding to a question from MNI at his

July press conference by saying: "Why should rate hikes be influenced? Maybe in

the perverse minds of some market players might - this may be true, but

certainly not in the Governing Council members' minds."

--MNI London Bureau; +44208-865-3829; email: Jason.Webb@marketnews.com

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