Draghi’s Buying Spree for the ECB Might Start Modestly 

When Mario Draghi writes his first check to pay for asset purchases, he might not use much ink.

While the European Central Bank president pledged to start a program this month to buy asset-backed securities and covered bonds, initial buying in those markets will probably be modest, according to two euro-zone central bank officials who asked not to be identified because the matter is private.

Policy makers gathering in Italy for their monthly decision are under pressure to act after Draghi’s pledge to add as much as 1 trillion euros ($1.3 trillion) to the ECB’s balance sheet failed to rein in bets on a worsening price outlook in the euro area.

“For an immediate effect on inflation expectations, a fast implementation seems important,” said Johannes Mayr, an economist at Bayerische Landesbank in Munich.

We “remain unconvinced that these measures will be sufficient to turn the downward trend in inflation expectations,” said Anatoli Annenkov, senior economist at Societe Generale SA in London. “Draghi will thus need to maintain a very dovish message, promising further action if needed.”

Draghi told European lawmakers in Brussels last month that officials are looking at a “fairly wide range of simple and transparent ABS” and the size of the market will increase as a result of the ECB’s presence. Purchases will include existing and newly created ABS and those backed by residential real estate.

The ECB’s credibility is at stake so it cannot afford to allow inflation and inflation expectations to undershoot the target for too much longer,” said Andrew Bosomworth, a Munich-based portfolio manager at Pacific Investment Management Co. “I favor elevating QE to the central policy tool.”

 

Source: bloomberg- Draghi’s Buying Spree for the ECB Might Start Modestly

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