Five Questions for Mario Draghi From ABS Program to Bank Review

Here are five things to watch for from Mario Draghi today. The European Central Bank president holds a press conference at 2:30 p.m. in Naples, Italy, 45 minutes after the Governing Council’s announcement on interest rates.

What will the ECB’s asset-purchase plan look like?

After Draghi pledged to buy asset-backed securities and covered bonds in September, all eyes are now on the details of the program due to be unveiled today. One of the main issues will be balancing Draghi’s stated aim of expanding the ECB’s balance sheet by as much as 1 trillion euros ($1.3 trillion) and not crowding investors out of a market he is trying to revive.

While answers to questions including “How much will the central bank buy?” and “How long will the program last?” may be limited, Draghi may offer more insight into which assets will qualify for purchases and whether the ECB will buy the securities directly or through a private intermediary.

He’s already hinted at some features of the plan: Existing collateral rules will play a role in defining quality thresholds, while government guarantees would be needed for the ECB to also branch out into less secure parts of the market.

How about interest rates and liquidity measures?

All economists surveyed by Bloomberg News predict rates will remain unchanged this month after the ECB unexpectedly cut the benchmark rate to 0.05 percent and the deposit rate to minus 0.2 percent in September.

Even though the rate cuts made borrowing under the new targeted lending program more attractive, demand from banks in the first operation fell short of all economists’ estimates. The ECB allotted 82.6 billion euros, prompting cautioning words from officials that the success of the plan will be better judged after a second offer in December.

What is happening with inflation?

Euro-area inflation, which the ECB aims to keep just under 2 percent, slowed to 0.3 percent in September, the lowest level in almost five years. While Draghi has said that most factors pushing down prices -- from the exchange rate and geopolitical tensions to costs for food and energy -- are temporary, core inflation fell to 0.7 percent last month.

In September, Draghi changed the wording on inflation in his opening statement, saying the ECB will “closely monitor the risks to the outlook for price developments over the medium term.” A return to the previous formula -- which said “upside and downside risks” to the inflation outlook were “limited and broadly balanced” -- would mean the ECB sees its policies as effective.

Is the euro bringing relief?

The exchange rate has been a rare source of comfort for the ECB in recent weeks. The euro fell to a two-year low against the dollar this week and is poised for its worst quarter since 2010. The single currency has shed 8 percent since June, when Draghi kicked off the latest round of stimulus.

As well as boosting exporters’ competitiveness, a lower euro increases the cost of imports, aiding the effort to revive inflation. While the ECB maintains that the exchange rate is not a policy target, the depreciation has been a welcome side effect of the central bank’s policies and rhetoric.

What is the state of play of the ECB bank review?

The Frankfurt-based central bank is due to publish the results of its comprehensive assessment sometime in late October. That’ll mark the end of a nine-month process of combing through banks’ balance sheets and stress-testing them before assuming supervisory powers on Nov. 4. The ECB started to discuss preliminary results with individual institutions this week.

Before it's here, it's on the Bloomberg Terminal.