ECB Survey Sees Draghi Wishing Farewell After Increasing Rates

  • Professional forecasters assume benchmark rate at 0.1% in 2019
  • Rates can only rise ‘well past’ end of QE, Draghi has said

ECB's Draghi Signals Stimulus Commitment

Just one day after Mario Draghi urged those calling for a normalization of monetary policy to be patient, the European Central Bank released forecasts showing how long economists expect them to have to wait.

That’s according to the underlying assumptions in the Survey of Professional Forecasters. The report, released on Friday, reveals that unlike last quarter, economists see the main refinancing rate averaging at about 0.1 percent in the final year of the ECB president’s term, compared with zero currently.

Implicit in that view is an expectation that quantitative easing will end before.

Draghi’s critics may be gratified to see that the Italian, whose unconventional policies guided the ECB into uncharted territory, will at least make a start in unwinding some of those measures before he leaves office at the end of 2019. An acceleration of inflation to the fastest since 2013 -- primarily due to higher oil prices -- has fueled a debate about the appropriate degree of monetary stimulus, with some of the most vocal comments in Germany.

After the Governing Council confirmed on Thursday that its QE program would run until at least the end of 2017 and pledged to keep interest rates at “present or lower levels for an extended period of time, and well past the horizon of our net asset purchases,” Draghi called on his German audience to keep calm. There are still no signs of a “convincing” upward trend in underlying price pressures, he said.

While a boost from energy prompted economists surveyed by the ECB to raise their forecasts for headline inflation in 2017 and 2018, their outlook for core price growth remained broadly unchanged. The ECB said 57 economists participated in the poll conducted Jan. 4-11.

“We are on our journey to our inflation target,” ECB Governing Council member Francois Villeroy de Galhau said in an interview with Bloomberg Television in Davos, Switzerland.

His colleague Benoit Coeure suggested it may take some time until policy makers will be comfortable talking about their exit strategy. “Inflation is not firm enough, is not sustainable enough,” the Executive Board member told CNBC. “It’s too early to have the discussion.”

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