A Japan-based wealth management company, Capital Taiyo Trading has reported that the European Central Bank President Mario Draghi’s speech in Portugal, was interpreted by many as a sign that the central bank could start tapering as early as September, which is earlier than expected.
Since his speech in June, the European Central Bank has tried to calm down those expectations, because the bank wants to calm down expectations in order to prevent unwanted tightening of monetary conditions.
According to CTT, the European Central Bank is in a very tough situation: Economic growth has been surprisingly strong, and the data shows full recovery in the near future, but inflation is nowhere close to target of below 2 percent. Headline inflation for June declined ever so slightly to 1.3 percent from 1.4 percent in May. This means that the ECB will continue to face little inflationary pressure.
“A significant drop in oil prices against the pick-up in bond yields and the strengthening of the euro have further deteriorated the ECB’s inflationary outlook, is what we have seen in recent weeks,” according to Mitsue Ippei, Head of Research & Analysis at Capital Taiyo Trading.
September will be an important month, as it may give markets a clear roadmap of what might happen to the asset purchase program next year. The majority of economic experts expect a six-month extension with a reduced volume.
The European Central Bank wants to prepare the markets for an exit of their ultra-loose monetary policy as it is known now, without creating even greater distortions in the markets. “We were unanimous in setting no precise date for when to discuss changes in the future,” Draghi told a press conference in Frankfurt, Germany. “We simply said that our discussions should take place in the autumn.”
Mario Draghi explicitly said that the ECB did not yet have a tightening agenda in mind, he did say that by September it would have the necessary information needed to start discussions.