European Central Bank (ECB) President Mario Draghi is likely to announce a 550 billion euro (US$635 billion) bond-purchase program this week economists say.
Draghi plans to make his biggest push yet to steer the eurozone away from deflation by announcing quantitative easing (QE) on Thursday, according to 93 percent of respondents in a Bloomberg News survey.
The median estimate of the size of the package tops the 500 billion euros in models presented to officials this month.
Draghi’s goal at a press conference after the ECB’s governing council convenes will be to convince investors he has a strategy big and bold enough to reinvigorate the moribund economy.
Speculation over his plans has already sent the euro to an 11-year low, with the fund flows probably contributing to the Swiss National Bank’s shock decision to end its euro cap on the Swiss franc.
“Market expectations now are stellar,” Credito Valtellinese SC head of research Attilio Bertini said. “There must be no disappointment... the ECB’s next move should be pervasive, risk-transferring and long-lasting.”
The proportion of economists predicting quantitative easing at this week’s meeting has risen from 37 percent in a survey carried out after the last monetary-policy meeting on Dec. 4 last year.
This month’s survey polled 60 economists and was conducted from Jan. 9 to Friday last week.
With plunging oil prices tipping the euro-area inflation rate below zero for the first time in more than five years, policymakers have been arguing in media interviews and speeches over how to react.
Much of that has been in Germany, where criticism of quantitative easing is strongest.
Bundesbank President Jens Weidmann has claimed cheaper energy already provides stimulus to the economy. European Central Bank Executive Board member Benoit Coeure said it might not be enough.
“Anything that happens to headline inflation rates has potential to feed into long-term inflation expectations and that’s what we have to be wary of,” Coeure said in comments published on the ECB’s Web site last week.
While no decision has been taken on quantitative easing, “for it to be efficient it would have to be big,” he said.
About half of economists in the Bloomberg survey forecast the ECB would announce a total purchase size, and 15 percent said it would limit itself to a monthly amount.
Monthly buying could continue for a predetermined period, or until inflation is back at the ECB’s goal of just under 2 percent. Consumer prices fell an annual 0.2 percent last month.
Fifty-seven percent of respondents said quantitative easing would largely focus on government bonds, with some other debt instruments included. A quarter predicted a broad mix of sovereign debt and other securities, and 14 percent said the program would exclusively purchase sovereign debts.
Draghi intends to expand the ECB’s balance sheet to as much as 3 trillion euros through asset purchases and loans to banks.
The central bank currently has assets of 2.2 trillion euros, though that’s likely to shrink in coming weeks as 200 billion euros of crisis-era loans to banks mature.
He met with German Chancellor Angela Merkel on Wednesday last week for “regular informal talks,” a German government spokesman said last week, declining to comment on the topic.
Der Spiegel magazine reported on Friday last week that Draghi told her the latest quantitative easing plans.
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