Frankfurt/New York: Mario Draghi (pictured) may be willing to take a faster route to monetary-policy normalization than economists previously thought.
While no changes to interest rates or asset purchases are expected at Thursday’s meeting, most respondents in a Bloomberg survey now say the European Central Bank president will revise forward guidance as early as June, six months sooner than in an earlier poll. Economists also reduced their estimate for how long it will take to taper quantitative easing and brought forward their predicted rate hike.
Public divergences among senior policy makers in recent weeks have fueled speculation that the ECB is close to signaling the withdrawal of its extraordinary stimulus. While Draghi has tried to quash that talk, and French presidential elections starting on Sunday still pose a threat to the euro area, the region’s steadily-strengthening recovery may convince him to at least hint at his exit strategy.
“Assuming there are no major shocks, then the ECB will want to start taking the monetary stimulus punchbowl away, albeit at a modest pace,” said Alan McQuaid, an economist at Merrion Capital in Dublin. “It is likely to start with changing its forward guidance after the French election, then announce its tapering intentions after the German election in September and then deliver on bond-buying reductions.”
Thursday’s meeting in Frankfurt might see the official start of an exit discussion that has so far been conveyed only in public appearances and media interviews. Draghi said after the March 9 Governing Council meeting that it wasn’t a topic, and stressed in an April 6 speech that the economy offered no grounds to “materially alter our assessment of the inflation outlook.”
