Draghi holds the Spotlight as The ECB Meets

With just six more months of asset purchases left, and recent data highlighting the shaky nature of the recovery, most economists surveyed by Bloomberg project that the ECB will need to extend its quantitative easing scheme. But policy makers first need to decide whether that requires a redesign of a 1.7 trillion-euro ($1.9 trillion) program that is swiftly burning up the region’s supply of debt.

“The question is not whether the ECB will ease, it’s more about getting the sequence right to maximise the impact of the additional measures,” said Frederik Ducrozet, an economist at Pictet & Cie in Geneva, who expects fresh stimulus to be announced in December. “More time is needed to acknowledge and address the scarcity issue facing asset purchases.”

The ECB President, Mario Draghi is being faced by a major difficulty to reach a consensus on increasing the bond purchases at the current ECB meeting. On the other hand, the failure of the President to take any action is likely to come with even stronger rhetoric over its determination to lift inflation with Draghi also likely to a promise a policy re-evaluation in the fourth quarter.

A hint at the possibility for more near term actions would reduce the chances of a squeeze on bearish Euro trades and also reduce bear bets on equities. The ECB is scheduled to make its latest interest rate decision public on Thursday as the market holds a major expectation that all major rates will remain the same, the market is however filled with uncertainty as to whether bond purchases will be extended beyond March 2017. There have been hints from ECB sources that the ECB is not in a hurry to make any moves, despite an increase in pressure stemming from the recent data and also some important technical issues that need to be addressed.

In anticipation of the ECB meeting, the market currently has a high expectation for more extreme policies from the ECB, and is speculating randomly on new measures they might be willing to employ. Analysts are also of the opinion that, “In reality, its president should ignore them — and try something genuinely radical instead. He should admit the ECB has done all it can to revive the euro zone economy and hand the job over to the politicians”.

The European Central bank is however expected to announce their decision at 1:45 p.m. Frankfurt time, Draghi will also speak to reporters 45 minutes after the announcement. A few economists surveyed by Bloomberg predict any change in interest rates, just under half expect to see some form of action.