DRAGHI DILEMMA: Eurozone bank treads tightrope to avoid market meltdown on money-printing

Thursday, July 20, 2017
By Paul Martin

THE eurozone’s top monetary policymaker today risks triggering market carnage when he gives an update on the economy and the European Central Bank’s (ECB) huge money-printing programme.

Thu, Jul 20, 2017

Mario Draghi will walk a tightrope as he tries to manage expectations over how the eurozone’s stubbornly low inflation will be dealt with amid higher growth.

The ECB chief accidentally sparked higher Government borrowing costs in bond markets and a strengthened euro when he last month talked up the bloc’s recent recovery.

Markets took the comments to mean the bank could scale back its huge money-printing programme, which currently injects billions of euros a month into the economy by buying bonds.

Sources at the bank were quick to play down the comments, but the single currency remains elevated and could crash if Mr Draghi is too pessimistic today.

However, low inflation across the economy remains a huge concern for policymakers and money-printing – so-called Quantitative Easing (QE) – can help kick it into action.

Mr Draghi has previously said support for the eurozone will remain in place until inflation starts to rise.

The ECB is also likely to want to keep the euro weaker, and government borrowing costs lower or the bloc’s recovery could be hit.

Investors will now hang on to Mr Draghi’s every word, with comments loaded with the potential to trigger major market movements.

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