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--A Draghi Nod To Growing Downside Risks Expected, Could Alter Risk Balance
--Despite Dec End To New APP Purchases, ECB To Underline Accommodative Policy
LONDON (MNI) - The European Central Bank will confirm the end of new asset
purchases at its December meeting despite downgrading its growth forecasts, and
while concerns over a possible global slowdown could prompt changes to its
assessment of the balance of risks, its forward guidance is expected to remain
unchanged, eurosystem sources told MNI.
The ECB's in-house growth projections, to be released next week, are likely
to be downgraded for 2019 and 2020, an ECB source said, although the inflation
forecast is looking harder to call, given fluctuations in the price of oil.
But additional dark clouds may be gathering. A senior eurosystem official
pointed to concerns over the chaotic state of the UK's Brexit deliberations,
along with signs that the U.S.'s clash with China over trade may be impacting
growth, noting bad news headlines were hitting confidence in the outlook across
the bloc into the New Year.
With risks clearly accumulating to the downside, it is possible that the
ECB might alter the phrasing of its introductory statement, which in October
described the risks to eurozone growth as "broadly balanced", the senior
official said, although he added that such a change was not certain.
On the positive side, the recent fall in the price of oil could help steady
fragile consumer confidence, the senior eurosystem source said.
Modifications to the ECB's language could be decided at the last minute,
depending on the most recent data, another eurosystem source said. The volatile
global environment, particularly the UK Parliament's vote on the government's
proposed EU withdrawal agreement and political declaration, which is due on Dec.
11 -- just two days before the ECB meeting -- also complicates matters.
But the ECB's current guidance, which calls for interest rates to remain at
current levels through the summer of 2019, should remain unchanged. If the rate
decision were imminent, the ECB would almost certainly be more dovish in its
guidance, the senior eurosystem source said, but as the central bank is still at
least six months away from having to provide markets with a clearer view of its
next move, it has no need to offer additional clarity now. "Why box yourself
in," he pointed out.
--CONFIRM APP END
Despite the growing downside risks, the Dec. 13 meeting will see
confirmation that the central bank's asset purchase programme is ending, already
trimmed from the original E60 billion a month in March 20105 and the E80 billion
a month high point to the current E15 billion, as the ECB moves cautiously
towards a normalisation of monetary policy.
"The September reduction went smoothly ... there is no need to think this
(ending of APP) will be any different," the first ECB source said.
But sources continue to stress that policy remains highly accommodative,
despite the end of fresh APP. One source went as far as to remind that "there
are no limits to what we (the ECB) can purchase or do in case of need. The alarm
that we might run out of ammunition should another crisis occur, is nonsense.
Our toolbox has infinite resources".
--MNI London Bureau; tel: +44 203-586-2225; email: email@example.com
--MNI London Bureau; +44 203 865 3829; email: firstname.lastname@example.org
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