Investing.com - With European Central Bank President Mario Draghi set to address the regular press conference after the bank’s policy meeting in Frankfurt on Thursday, ECB watchers are awaiting fresh clues on the future of its monetary stimulus program.
The future of the ECB’s €60 billion-a-month ($69.2 billion) asset purchase program, known as quantitative easing, is still uncertain. The stimulus program is currently set to continue to the end of the year “or beyond if necessary” with a winding down, or tapering phase to follow.
The bond-buying program is set to total €2.3 trillion ($2.65 trillion) by the end of this year, and has been bolstered by negative interest rates and free loans to banks.
Draghi is attempting to strike a balance in preparing the financial markets for tapering, without creating a ‘taper tantrum’ which could distort markets.
In a speech in Sintra, Portugal late last month Draghi hinted at the possibility of changes to the bank’s asset purchase program, which helped propel the euro to a 14-month high against the dollar.
German Bund yields have more than doubled in the three weeks since the Sintra speech. Yields rise when prices fall and falling bond prices are generally a reflection of higher inflation expectations.
Draghi argued that low inflation could be a temporary phenomenon, but made it clear that the ECB needs to be prudent in how it adjusts its monetary policy parameters to improving economic conditions.
Expectations that the ECB is moving closer to tapering were amplified after the minutes of the bank’s June 7-8 meeting showed that officials discussed removing from their statement the pledge that they would step up the pace of bond buying should the economy need more stimulation.
ECB watchers expect Draghi to largely echo his Sintra speech on Thursday, but markets are also prepared for some more dovish sounding comments intended to keep a lid on the euro and German Bund yields.
The ECB’s next policy meeting is in September.
The ECB head is unlikely to flag any bold changes to monetary policy ahead of his appearance at the U.S. Federal Reserve’s Jackson Hole conference in late August.
The Wall Street Journal reported last week that Draghi could use the Jackson Hole speech to indicate that the strengthening euro zone economy is now less dependent on monetary stimulus.
The last time he spoke there, in 2014, his speech effectively heralded the start of QE.
Analysts at ING expect that the ECB’s ‘tiptoeing’ towards tapering will continue on Thursday, with Draghi repeating the key messages from his Sintra speech. However, they added that some dovish remarks should not be excluded.
Deutsche Bank expects Draghi to open the door to a September decision on QE and expects the ECB to maintain its pledge to do more (“size and/or duration”) if necessary - for the time being.