MNI SOURCES: ECB Likely On Hold For Rest Of 2019

     LONDON (MNI) - The European Central Bank is likely to keep its policy

settings unchanged for at least the rest of the year, as new President Christine

Lagarde faces the immediate task of soothing tensions within an openly divided

Governing Council, ECB sources told MNI.

     Outgoing President Mario Draghi's final meeting on Thursday will be

uneventful compared to September's, when the decision to cut the deposit rate by

10 basis points to -0.5% and relaunch quantitative easing at the rate of E20

billion a month came despite opposition from the Dutch, German, Austrian and

French central banks.

     Recent economic data has shown signs of stabilising, albeit at low levels,

one source said, adding that updated staff forecasts in December would probably

be little worse than September's. It is unlikely that Lagarde would attempt to

push through any further policy changes at her first meeting in December, the

source said.

     "Her management skills at holding coalitions together could be very much a

needed skill in coming months. Perhaps some dissenting governors have enjoyed

the freedom to speak and it has liberated them to be more vocal in future. I am

sure she would like to curb any such instincts to smooth her early months.

     In contrast to September's discord, the ECB's October meeting will be a

"valedictory" gathering for Draghi, the source told MNI, adding "It is probably

a time to let the disagreements from last month settle a little."

     Another source agreed.

     "I wouldn't expect any concrete discussion on any potential next steps

until early next year, we need to take stock of this year's last quarters to

properly weigh how things are going," the source said.

     "I'm quite confident in saying nothing more will happen this year."

     --LIMITS TO BOND BUYING

     Draghi has upped calls for eurozone states to increase fiscal spending,

arguing that monetary policy alone will be insufficient to provide the support

the economy needs. His successor is likely to continue that push.

     Another matter on which Lagarde, a trained lawyer, will be able to focus

her skills will be whether the ECB could further raise limits on its purchases

of individual countries' sovereign bonds, currently capped at no more than one

third of outstanding stock. Without raising these limits, or else deviating from

the ECB's capital key which proportions bond purchases according to eurozone

member states' shares of its capital, the central bank's QE programme could run

out of securities to purchase within about a year, sources have told MNI.

     Bundesbank President Jens Weidmann has already warned that he would oppose

any attempts to lift the limits. An additional complication could come from a

German constitutional court ruling on ECB bond purchases, due in the next few

months, another ECB source said, adding that an anti-QE ruling could not be

completely ruled out.

     But one of the sources was sanguine: "I don't think the German

constitutional court ruling will be an issue. Last year the European Court of

Justice ruled that the ECB's bond purchasing program was legit and the ECB was

not overstepping its remit."

     An ECB spokesman said he could not comment on the sources' remarks to MNI.

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

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