ECB Sept'19 meeting Preview - Will Draghi deliver one last time?

European Central Bank (ECB) are all set to announce their policy decision today.  Expectations are running high as the central bank will have limited opportunities moving forward to spring a surprise on markets in order to bolster confidence and inflation expectations.

Following are the market expectations from the ECB:

(a) A cut to the deposit facility rate is all but a given but we will see how much deeper into negative rates territory ECB is willing to explore. Markets are anticipating a ~45% chance of the ECB cutting rates by 20 bps instead of 10 bps. The forecasts have been as deep as 40 bps as well.

(b)  Along With a rate cut, the ECB will also introduce a tiering system to help alleviate pressure off banks due to the negative rates - something similar to what we see in Japan currently.

(c) ECB  is also expected to revise its forward guidance to reflect a more dovish stance by extending the horizon to keep rates at present or lower levels.

(d) But the key question will be whether or not we'll see the reintroduction of QE. Expectations are running from 30-60bn euros per month lasting till at least June 2020 though the hawkish members have not put behind their weight against QE reintroduction.

If the QE announcement underwhelms or there is no QE announcement at all, the market will also push back against Euro sellers. It basically underscores that the ECB is in a really rough spot at the moment to try and shore up economic confidence and inflation expectations. As always, it will be up to Draghi to manage those expectations.

Draghi term ends on Oct 31 with Lagarde taking over from Nov 1. He is set to chair his final governing council meeting on 24 October, but by then the ECB is expected to have already enacted its latest monetary stimulus program.  Draghi said in July that a number of governing council members were questioning the breadth of a possible monetary stimulus package. Following the last policy meeting of euro area central bankers, he also noted that the council had not discussed a reduction of the deposit rate.  But regional and global uncertainty tied to Brexit, the Sino-US trade war, and tensions in the Middle East have undermined confidence, and consumer prices and economic output in the Eurozone are faltering and bond Yields are collapsing.
This is essentially another big "whatever-it-takes" moment for Draghi in his penultimate press conference. 

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