ECB Governor Draghi Giving Calculated Statements

The governor of ECB, Mario Draghi is expected to face a dilemma during the July rate decision meeting, as the bank is seeking  an exit path from the massive stimulation program in the absence of inflationary pressures. It is expected that the ECB board, led by Draghi, to maintain the three rate prices as is for the eleventh policy cycle in a raw on Thursday, and to maintain the asset purchases which will continue until the end of the year. Despite that, economists are widely expecting that Draghi will continue with extreme caution when addressing the press conference after the announcement.

After his comments in the Central Bankers Forum in Sintra, Portugal in late June and the market expectations of potential hawkish stance in the Bank’s policy, the Euro rose to its highest level in a year against the USD. Draghi’s comments today should be carefully calculated and caution is advised to avoid this type of market turmoil called “Frenzy Taper”.

Analysts say that in a world with no inflationary pressures, the ECB will have to prove stress on economic arguments leaving market participants with no ambiguity, which is a balanced work requiring Draghi’s rhetorical skills. Economic experts expect that Draghi and his colleagues will avoid any hints of a gradual cut in the stimulations in September, when it is expected to have an announcement about a possible hawkish move for January after the end of the current cycle.

In the June meeting, ECB raised forward guidance by dropping the bearish rate bias. Some analysts are expecting the bank to do this amendment on the guidance related to asset purchase program in July, and that raising interest rates will not start until the stimulations are withdrawn. The ECB is expected to discuss this QE in the next meeting, but we think that they will only present a slight development and remove their intention to increase the QE plans. Despite this, the ECB can add that they will reconsider part of the stimulation program in September meeting, when the bank is expected to update the inflation expectations.