The European Central Bank holds its monthly policy meeting and after launching a range of new measures in June it’s a racing certainty that nothing will happen this time. However, ECB President Mario Draghi has plenty of scope to move markets and minds in his news conference.
We are still waiting for details of the ECB’s new long-term lending programme which is supposed to be contingent on banks lending the money on to companies and households. Last time they got a splurge of cheap money, the banks largely invested in government bonds and other financial market assets. With euro zone yields now at record lows, the ECB would not like to see a repeat.
Draghi will certainly be asked to clarify what looked like a new attempt at forward guidance. Last month, the ECB offered up new four-year loans to banks, and extended its offer of unlimited liquidity to the end of 2016.
Draghi subsequently said that was a signal that rates could stay at a record low 0.15 percent for longer than previously foreseen. Did he mean until the end of 2016, or even 2018 when the new long-term loans expire?
If so, it would be a brave investor that would take it at face value. Central bank forward guidance has been fraught with difficulty. Item 1 is the Bank of England which only last year was talking about rates staying at record lows into 2016. Now, the consensus is that a first upward move could come this year with house prices going through the roof (excuse the pun).