Greece, QE Program to Top ECB Meeting in Nicosia


The European Central Bank, meeting in Cyprus on Thursday, is set to update its economic forecasts and reveal details of its new bond purchase program, analysts said.

Greece will also be high on the agenda of the ECB’s decision-making governing council, following the recent eurozone deal to extend aid to the debt-wracked country, the experts said.

The eurozone’s central bank is holding its second monetary policy meeting of the year in Nicosia instead of its usual venue of Frankfurt.

After revealing its plans for quantitative easing (QE) in January, the ECB will focus on fleshing out the details of that programme rather than announcing any new measures, analysts said.

“Following the QE announcement in January, we expect no further policy decisions,” said UniCredit economist Marco Valli.

In adopting a “quantitative easing” or QE policy, as other central banks have, the ECB plans to buy 60 billion euros ($68 billion) of private and public bonds each month for 18 months in a bid to ward off deflation in the euro area.

“It would be a big surprise if the governing council were to announce any significant new measures in March,” said Ben May of Oxford Economics. “After all, the ECB is yet to commence the purchase of sovereign bonds which will form the backbone of its QE programme.”

The ECB will also publish its latest updated growth and inflation forecasts for the 19 countries that share the euro.

ECB vice president Vitor Constancio has already signalled that the growth forecasts would likely be revised upwards, as the eurozone economy benefits from the cheaper euro, falling energy prices and the positive effects of economic reforms.

By contrast, the 2015 inflation projection was likely to be slashed once again, owing to much lower oil price assumptions.

“If anything, the (ECB’s) macro-economic assessment should have improved,” said ING DiBa economist Carsten Brzeski.

Fourth-quarter gross domestic product (GDP) data was better than expected.

“And the latest batch of sentiment indicators signalled that the lower energy prices and weaker euro have finally reached the eurozone economy,” Brzeski said.

Following the recent head-on battle between Greece and its international creditors on the terms of extending its bailout programme, Greece would also be a major topic for the ECB governing council, analysts said.

Greek banks are dependent on the ECB for financing, but the central bank has said it no longer accepts Greek sovereign bonds as collateral for loans. That means they now rely solely on emergency liquidity assistance (ELA) which is more expensive than normal central bank refinancing operations.

And until the new left-wing government in Athens agrees definitively to remain within the bailout programme, ELA financing looks likely to be the only lifeline for Greece’s banks.

UniCredit’s Valli expects Draghi to be questioned about “the possibility of reinstating the Greek debt waiver after the agreement struck between Greece and the Eurogroup”.

But he added that it was likely the ECB would wait for a more formal assessment of the reform progress before making Greek government bonds eligible again as collateral for regular refinancing operations.

“This may happen in April. In the meantime… the current size of ELA should be enough to cover the funding needs of the Greek banking system,” Valli said.



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