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Five Questions for Mario Draghi


Here are five things to watch for from Mario Draghi on Wednesday. The European Central Bank president holds a press conference at 2:30 p.m. in Frankfurt, 45 minutes after the Governing Council’s announcement on interest rates.

Must we really start worrying about tapering?

The ECB began large-scale asset purchases in March and said national central banks scooped up 61.7 billion euros ($66 billions) of government and public-sector bonds as of April 10. With the economic recovery gaining strength and survey data showing that quantitative easing is spurring credit, Draghi will be able to vaunt the positive effects of its latest stimulus measure just five weeks after its start. So much so, in fact, that the ECB president may be asked about the chances of an early exit from the program. ECB Executive Board member Yves Mersch hinted at the prospect in an April 8 interview. He also said purchases can be extended if needed. Draghi is likely to dismiss talk of tapering at this stage, referring to the latest ECB economic projections as a reason to continue with the purchases until their intended end.

Are the March forecasts too optimistic?

The ECB predicts inflation will rise to 1.8 percent in 2017, in line with the central bank’s mandate of just below 2 percent. Draghi has stressed that the forecast assumes the full implementation of the bond-buying program. An account of the March 4-5 meeting suggests policy makers may treat the projection with caution, given they are subject to higher-than-usual uncertainty. Draghi might be questioned on this and, in general, on the effect of QE on the inflation path. The persistent weakness in core inflation, which discounts volatile factors such as energy and food, is also a cause for concern. The indicator matched its lowest level on record in March, falling to 0.6 percent.

Will the ECB find enough assets to buy?

Investors fret that the ECB’s self-imposed ban on buying bonds with yields below the deposit rate, currently set at minus 0.2 percent, will lead to a reduction in the supply of purchasable assets, as yields across the term curve continue to fall. German bonds with maturities up to 4 years currently yields less than minus 0.2 percent, and even some short-dated Italian and Spanish bonds have negative returns. So far, Draghi has repeatedly dismissed such concerns. “There are no signs of a scarcity of securities and market liquidity remains ample,” he told Italian lawmakers on March 26. Countries struggling to fill their quotas on sovereign debt, such as the Baltics, have purchased agency debt instead.

What is the latest on Greece?

The Greek government is supposed to present a detailed reform agenda at a meeting of euro-area finance ministers next week in Riga as concern over the risks of the country’s exit from the currency bloc mounts. ECB Governing Council member Klaas Knot warned of potential contagion and International Monetary Fund Chief Economist Olivier Blanchard said that another episode of market turmoil cannot be ruled out. While Draghi will probably be questioned on these risks, he will also be called to comment on emergency funding available to Greek banks.

Is there progress on structural reforms?

Ever since starting QE, Draghi has been ramping up his rhetoric when calling on euro-area governments to implement structural reforms, and has called on European countries to build a centralized institution in charge of coordinating efforts across the region. Draghi will likely reaffirm the need to make use of low oil prices and ECB stimulus to turn the euro area’s “cyclical” recovery into a “structural” one.