World Economy

Draghi Ready for One More QE Sprint

Draghi Ready for One More QE SprintDraghi Ready for One More QE Sprint

The jolt Mario Draghi is set to give the eurozone economy may well be his last, economists say.

The European Central Bank president will announce an extension of asset purchases on Thursday at the current pace of €80 billion ($84 billion) a month, according to most economists in a Bloomberg survey. 

Slowly accelerating inflation and a moderate but steady recovery will then give Draghi room to start tapering by late 2017, three quarters of the respondents said.

Policy makers have become more vocal on the risks and limits of their ultra-expansionary stance, in a sign that a discussion about scaling back bond buying is drawing closer. Even so, the decision on quantitative easing comes just days after an Italian referendum brought down Prime Minister Matteo Renzi. That suggests looming elections in Europe will deter governments from overhauling their economies, keeping the onus on the ECB to ensure sufficient stimulus.

“The ECB will extend asset purchases of €80 billion a month for an additional six months beyond the current planned termination date,” said Ben May, an economist at Oxford Economics in London. “That said, with the economy still growing at a healthy pace by eurozone standards and headline and core inflation likely to rise steadily in 2017, we expect December to be the last major unconventional policy package from the ECB.”

Of the 53 economists surveyed from Nov. 28 to Dec. 2, 89% expect the central bank to announce fresh stimulus or QE changes after its Thursday meeting.

The ECB will keep the pace of purchases—currently scheduled to run until at least March—unchanged “at least initially” and “might communicate that they retain the freedom to adjust this if conditions change,” said Claus Vistesen, chief eurozone economist at Pantheon Macroeconomics Ltd. in Newcastle, England. “This will be a difficult balancing act, and markets won’t like that.”

Draghi might tread carefully after last year’s December policy announcement fell short of investor expectations and markets sold off. While their calls for government support have grown louder, officials have committed to keep their stimulus in place until the recovery is self-sustained and inflation on an upward trend.

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