European Central Bank President Mario Draghi delivers a speech in Amsterdam which will fixate the markets following his recent statement that a stronger euro would prompt an easing of monetary policy.
Most notably via his Clint Eastwood-style “whatever it takes” declaration the best part of two years ago, Draghi has proved to be peerless in the art of verbal intervention. But even for him there is a law of diminishing returns which may require words to be backed up with action before long.
In the 12 days since he put the euro firmly on the ECB’s agenda, the currency has actually weakened a little and certainly shied away from the $1.40 mark which many in the market see as a first red line for the euro zone’s central bank. That is probably because investors expect action from the ECB soon and if so, there are good reasons to think they may be wide of the mark.
The ECB was open about its surprise at the drop in March inflation to just 0.5 percent but said it still saw no threat of deflation and expects the number to have risen in April (we’ll see next week). That would mitigate against action at the May policy meeting.
New ECB staff forecasts are due in June and by then the picture may be clearer but at best the central bank would be likely to start by shaving already ultra-low interest rates and possibly pushing the deposit rate – already at zero – marginally into negative territory. It is just as likely to do nothing at all, unless its inflation forecast has been downgraded markedly from the 0.6/1.6 percent for 2014 it came up with in March.