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By Christian Vits
FRANKFURT (MNI) - Despite the Governing Council being armed with the
updated economic forecasts from the staff economists, this week's European
Central Bank policy meeting and press conference will likely be a case of 'after
the Lord Mayor's Show' after all the attention focussed on the October meeting.
As the bank already unveiled its plan to extend its bond buys and to halve
monthly volumes back in October, mapping out the road ahead, the ECB will
probably see little need to change the wording or the forward guidance on
Against this background, President Mario Draghi will most likely stick to
his mantra that he will keep interest rates at current levels "well past" the
end of the net asset purchases.
Of greater interest will be the update of the staff macroeconomic
projections for 2018, with economic growth likely to be and inflation probably
being revised upwards. In September, the ECB forecast growth to average 1.8%,
with inflation expected at 1.2% next year. The staff will also outline forecasts
for 2020 for the first time.
Increase growth forecasts could bring the more hawkish Governing Council
members into the arena, renewing the debate over ending bond purchases after the
current extension period ends in September 2018.
In recent weeks, the dissenters against the ECB's decision to keep the
asset purchase program open-ended have raised their voices.
These are namely Bundesbank President Jens Weidmann, Executive Board member
Sabine Lautenschlaeger, Klaas Knot of the Netherland's central bank, Austria's
Ewald Nowotny and Estonia's Ardo Hansson. Executive Board members Yves Mersch
and Benoit Coeure seem to have at least sympathy for the idea.
Another interesting question in this context is, whether the opposition
camp will grow in coming months, giving them a realistic chance to enforce an
end of the asset purchases.
Nowotny stressed last month "there is kind of a movement, because more and
more colleagues think that we are in danger that the cost of the expansionary
monetary policy slowly exceeds the benefit."
Mersch last week struck a similar tone: "While ending the purchase
programme quickly could provoke undue market reactions, we should not overlook
the fact that the longer our asset purchase programme continues, the less
effective the programme and the greater the risks attached to it become," Mersch
An overly long delay could nourish "a market belief that the exit might be
permanently postponed," he added.
Still, it seems unlikely that Draghi would unveil any details of any such
debate. But he might shift the focus to the reinvestments of its APP stock
The core question here is whether the ECB intends to continue to reinvest
the proceeds of its stock, even when they have started to raise rates, taking a
U.S. Fed-style approach.
Another option would be that the Council stops the reinvestments before
executing the first interest rate hike.
While doubtful it will be forthcoming, any pointer that this debate has
already started and even more so an indication of its possible outcome, could up
the interest value from the pre-Christmas press conference.
--MNI Frankfurt Bureau; +49 69 97782671; email: email@example.com