Mario Draghi has only been fronting the European Central Bank (ECB) for one month. But what a month! In his first meeting as president of the group, he lowered interest rates from 1.5% to 1.25%.
He also ruminated on how the sovereign debt virus has spread to Italy and Spain, received increasingly forceful pressures to buy more peripheral debt, joined forces with the US Federal Reserve (Fed) and other global central banks in order to create a foreign exchange alliance and bolster liquidity in the banking sector, and listened carefully to talks about the current risks that could cause the euro to collapse.
The final touches on this bustling schedule will come this week. Specifically, on Thursday Draghi will conduct his second meeting with the ECB advisory board. Different from the first meeting, during which the lowering of interest rates came as a surprise, this time eyes will be focused on whether he will reduce the price of money.
Ninety percent of the forty-eight experts consulted by Bloomberg believe that he will cut rates another quarter of a percent, leaving them at one percent. That said, more than a few experts would like to see them lowered further still.
"We think it is a given that interest rates will drop again. I would like to see them go down half a percent, but realistically we expect at least a quarter percent," predicted José Luis Martínez Campuzano, a strategist from Citi in Spain.
But given how far the sovereign debt crisis has gone, lowering rates at this time might not do much good. The market needs more, mostly because of the banks extreme problems getting financing.
To allay the credit crunch, it looks like the ECB will introduce changes in its strategy for granting long-term financing deals. Until now ECB has not loaned money to banks for a period longer than thirteen months, but this does not rule out the possibility that they will fuel two or three-year financing deals for major banks.
