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ECB President’s Speech
The European Central Bank (ECB) chief, Mario Draghi, will have the opportunity to outline his plans for Eurozone monetary policy during two speeches today and tomorrow. Draghi is hosting a two day closed door retreat in rural Portugal where many international economic luminaries have gathered to discuss options for the European monetary authority.
The ECB Governing Council is meeting on Thursday of next week to administer monetary action on the Eurozone economy. Most market observers at this stage expect cuts in both the benchmark Refinance Rate and the Overnight Deposit Rate, the latter of these is already at 0% and it looks like the Bank is preparing to experiment with negative interest rates in an effort to stimulate the Eurozone economy.
Among the panel discussions scheduled for Draghi’s retreat is a discussion around the likely effects of an asset purchase program. It is becoming more likely that this will become a reality as record low interest rates render the ECB’s arsenal almost empty, the Bank however is reluctant to implement such a quantitative easing program due to legal and technical difficulties, most notably public resistance from the German government. Ultimately there may be no option other than such a program but it is very unlikely that this will be tabled at next week’s Governing Council Meeting.
Input at the retreat from noted economist Paul Kurgman, IMF managing director Christine Lagarde and other global economic heavyweights have the potential to influence the ECB’s thought process over the coming months. Mario Draghi will be making closing remarks tomorrow afternoon and these will be watched very closely for indications that the ECB may deviate from the market anticipated actions of near term rate cuts followed by a long road to the introduction of an asset purchase program that may ultimately never occur.
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