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Opinion

Macaskill on markets: After the Draghi put, a Coeuré call?

The successor to Mario Draghi as president of the European Central Bank (ECB) may provide more support than expected to corporate credit markets if borrowing conditions deteriorate.

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Draghi ended his last full year as ECB president with a performance that deployed his trademark adroit management of market expectations with choreographed policy changes.

He confirmed in a December press conference that expansion of the ECB’s quantitative easing (QE) policy of bond purchases would end on schedule in 2018, and that the central bank does not expect to raise key interest rates until at least the summer of 2019.

Draghi cemented his reputation as the Markets Whisperer by highlighting the “great uncertainty” facing economic growth prospects, which encouraged traders to hope that a rise in European rates may be delayed beyond the targeted start point of mid to late 2019.

He added that: “The monetary policy formulation that we have wants deliberately to keep optionality as a dominant feature” of its toolkit and stressed that asset purchases will not end with the termination of the expansion of quantitative easing, as redemptions will be reinvested.

The statement on optionality has important implications for the mechanics of the ECB’s intervention in bond markets and the extent to which it will be willing to provide support to sectors such as corporate credit in the likely event that borrowing conditions worsen in 2019 and 2020.




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