AS Mario Draghi secludes himself with Europe’s top minds in central banking this week, he won’t be able to escape one question: What’s next?
After all but promising that he’ll ease monetary policy in June, the European Central Bank (ECB) president must now manage market expectations as banks from Goldman Sachs to Societe Generale speculate whether he’ll go further and deploy large-scale asset purchases in the coming months.
Mr Draghi yesterday opened the first ECB Forum, a gathering of policy makers and academics to be held annually northwest of Lisbon.
What Mr Draghi says this week could provide clues on how he plans to overcome the low inflation that’s threatening the euro area’s return to economic health.
Officials have said they’re working on a package of possible measures for the June 5 policy meeting, including interest-rate cuts and liquidity injections, while holding out the prospect of quantitative easing as a more powerful option.
“An important part of the package will be the accompanying words,” said Francesco Papadia, a former director general of market operations at the ECB and now chairman of Prime Collateralised Securities in Frankfurt.
“If he says that the council has given a first installment of measures and will be ready to do more if needed, especially when it comes to bringing inflationary expectations more quickly toward 2pc, this could give more weight to the easing package.”
Mr Draghi will give a keynote address this morning at the event in Sintra, Portugal.
Big-name thinkers on monetary policy such as Nobel Laureate Paul Krugman and Princeton University’s Markus Brunnermeier will address the getaway.
They’ll be joined by policy makers from International Monetary Fund managing director Christine Lagarde to Eurogroup president Jeroen Dijsselbloem. ECB Executive Board members Vitor Constancio, Peter Praet and Benoit Coeure will chair discussions.
The ECB may use the occasion to elaborate on what Mr Draghi meant when he told reporters on May 8, after leaving rates on hold, that the Governing Council is “dissatisfied” with the outlook for consumer prices and “comfortable” with action in June.
Inflation has been below 1pc since October, less than half the ECB’s goal.