Home' Trinidad and Tobago Guardian : January 31st 2016 Contents Mario Draghi, president of the European Central
Bank, has a tricky six weeks ahead of him.
The head of the top monetary authority for the
19-country eurozone helped stem a global stock mar-
ket slide last week by indicating the ECB could provide
more stimulus at the next meeting in March.
That was a big deal for markets, but for Draghi it
may have been the easy part.
Draghi now has the challenge of backing up words
with action. He must defuse a restless minority of
stimulus sceptics on the bank s 25-member governing
council and come up with something convincing---
or risk disappointing the already frazzled financial
markets, triggering another drop in stocks.
The ECB left its stimulus programs unchanged last
week, but Draghi said it would review the possibility
of more stimulus on March 10. And he repeated
several times there was "no limit" to the stimulus
tools the bank could use.
Analyst Carsten Brzeski at ING-DiBa said those
comments "make it extremely hard not to act. Dis-
appointment is in the cards anyway, but not to act
at all would be a big disappointment."
That s partly what happened in December. Draghi
had made similar hints of big stimulus ahead of the
December 3 meeting. But at the meeting, the ECB
provided less stimulus than expected and stock mar-
The central bank is trying to push up inflation,
which is considered way too low at 0.2 percent annu-
ally, and which could fall below zero due to the oil
price plunge. At its December meeting, it extended
its 60 billion euros ($66 billion) in monthly bond
purchases by six months, but declined to increase
the monthly amount. It also declined to cut the rate
on deposits left at the central bank by commercial
banks, currently minus 0.30 percent. That negative
rate is aimed at pushing banks to lend money rather
than hoard it.
Draghi's bully pulpit:
The bank president is out campaigning publicly
against those on his board who want to hold back
on stimulus. Sceptics fear too much can create bubbles
in the markets or reduce the incentive for governments
to make reforms.
"Now they warn us about side effects and risks
of what we re doing... what I never hear them discuss
is the risks of doing nothing," Draghi said in a speech
He argues that the ECB must act to reach its infla-
tion goal or lose credibility.
Economist Ulrike Kastens at private bank Sal.
Oppenheim points out Draghi s ability to pull skeptics
along with him on past decisions, including the
December 3 stimulus expansion. "In the past, it has
always been the case that he subsequently delivered,"
A leading skeptic has been Jens Weidmann, the
head of Germany s national central bank. He has
warned recently that "extreme low interest rates"
take pressure off EU member governments to balance
budgets and reform their economies, "fostering an
illusion of sustainability."
Weidmann appears to have some like-minded col-
leagues in Klaas Knot, the head of the Dutch central
bank, and Sabine Lautenschlaeger, a former Bun-
desbank colleague and now a top ECB official. Estonia s
Ardo Hansson has also made skeptical comments.
While critics are a minority, the bank likes to
operate with a broad consensus behind its policies.
Too many dissidents could push Draghi to scale back.
Opposition to stimulus could be overcome by data
showing the ECB falling farther and farther behind
in its fight to boost inflation.
Economist Kastens said Draghi s critics remain in
the minority and that "there is already a broad majority
that will vote for further monetary loosening."
She said inflation data for January and February
will be out before the next meeting, as well as business
surveys that could suggest growth is weakening. Dis-
appointing readings would bolster the argument in
favor of adding stimulus.
At the March meeting, the council will also have
new inflation forecasts compiled by their own internal
staff. Those could slash the inflation outlook for this
year a long ways from the current 1.0 per cent. AP
SUNDAY BUSINESS GUARDIAN www.guardian.co.tt JANUARY 31, 2016
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After stimulus hint, ECB chief
under pressure to deliver
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