The European Central Bank takes centre stage. While others in the euro zone are saying the way Cyprus was bailed out – with bank bondholders and big depositors hit – could be repeated, the ECB insists it was a one-off.
Fearful of any signs of contagion it will continue to talk that talk and there’s no sign of it having to do more so far, with no bank run even in Cyprus let alone further afield. But the last two weeks has reignited debate about what the ECB might have to do in extremis. It’s no nearer deploying its bond-buying programme but it could flood the currency area’s financial system with long-term liquidity again if called upon.
Interest rates are expected to be held at a record low 0.75 percent. Hints of policy easing further out are not out of the question. As ever, Mario Draghi’s hour long press conference will be minutely parsed but there will be nothing to match the Bank of Japan which earlier announced a stunning revamp of its policymaking rules – setting a balance sheet target which will involve printing money faster and pledging to double its government bond holdings over two years.
That could revive the debate about competitive currency devaluations with the yen inevitably set to fall while the ECB has little in its arsenal to respond. A stronger euro is the last thing the currency bloc’s struggling economy needs.
The Bank of England could respond and is also meeting today but it is not likely to turn on the money printing presses again just yet although Governor Mervyn King and two of his colleagues have already voted to do so for two months running (the other six disagreed). If it is to come, it is more likely in May when the Bank publishes it quarterly inflation report.