Frankfurt (AFP)
Six weeks after having hinted at a panoply of stimulus measures, the European Central Bank is forced to act on Thursday, despite internal debates, as the economic context remains feverish.
Mario Draghi, the Italian president of the monetary institute, will he perform his last act of bravery before passing the hand in late October to the French Christine Lagarde, after eight years of a mandate marked by crises?
It will have to meet the high expectations of markets-fueled by the ECB itself-while providing the appropriate response to the economic situation in the eurozone, albeit slowed down but not immediately threatened with recession.
If the ECB "was to disappoint in September, he would have to do more later, with reduced chances of success", summarizes Frédéric Ducrozet, strategist at Pictet Wealth Management.
Dissent emerged this summer in the Board of Governors of the institution, divided on the opportunity to go out now the big monetary game, at the risk of prematurely burn all the cartridges of the institute.
The "doves", a camp traditionally in favor of strong support from the economy and led by Mr. Draghi, advocate the decline of one of the interest rates doubled by a revival of the extensive program of asset purchases conducted between 2015 and end of 2018.
- New forecasts -
But the "hawks" on the board, like the German Sabine Lautenschläger or the Dutchman Klaas Knot, are more reluctant to take over these purchases of debt on the market.
Whatever it decides, the institution intends to conduct its monetary policy "according to the data and not the market," warned late August Luis de Guindos, vice president of the ECB, trying to calm expectations.
The institute will be able to rely on Thursday on new economic forecasts, while those of June expected inflation of 1.3% in 2019 and 1.6% by 2021, still far from the objective of the ECB "close to 2%" in the medium term.
But since the July meeting, the economy in the eurozone has not shown signs of improvement and even flirts with the recession in Germany, which saw its gross domestic product fall by 0.1% in the second quarter.
Some factors of uncertainty have come down, such as the political risk in Italy. But chaos still reigns around Brexit, and the Sino-US trade conflict continues to poison the trade climate.
At a minimum, the ECB should leave its bank refinancing rate at zero, while lowering the deposit rate. Already 0.40% negative, it amounts to taxing the banks for the cash they choose to entrust to the Central Bank rather than lending to businesses and households.
- Anti-crisis weapon of 600 billion? -
In parallel could be announced a system of declining balance rates already established in Switzerland, Sweden or Japan, to lighten the interest burden weighing more than 7 billion per year on banks.
But the most delicate will be the decision to restart debt purchases, the program called "Quantitative Easing" or "QE", the most powerful anti-crisis weapon but also the least consensual.
"A total envelope of 600 billion euros would be justified today (...), but the dissensions between hawks and doves suggest to do less," said Frederik Ducrozet.
If the ECB adopts a limited program, "a deeper rate cut will be necessary to avoid unwarranted tightening of financial conditions," predicts Marco Valli, an economist at Unicredit.
In addition, new details could be communicated on the new wave of giant loans to banks, the third since 2014, to start in September.
Finally, the ECB could adjust the communication on its intentions, designed to steer investors' expectations to avoid swerving on the markets and preserve its credibility.
According to experts, it could give less importance to the timing of a potential rate hike, currently postponed until the end of the first half of 2020, and specify its inflation target.
© 2019 AFP