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- President Mario Draghi of European Central Bank (ECB), yesterday has clarified that ECB is going to star its purchase programme from 9th March 2015 and went ahead to express utmost determination to successfully complete the programme.
- In the event of the programme, inflation expectations in the Euro zone have gone up as measured by 5y5y swap rate. The rate traded as high as 1.76 percent in last night's trading. ECB has so far been successful in reversing the falling trend. Current level is highest in almost three months.
- Even after the announcement of the purchase programme on January 22nd, the swap rates continued to fall and reached near 1.50 percent by January. Since then the comeback is quite stable and significant.
- Mr. Draghi pointed that the success of the programme can only be called, when this inflation expectation reach above 2 percent. Historically before the crisis the rates prevailed much higher than 2 percent.
- Nevertheless oil price and subdued economic activity is expected to continue to weigh on the inflation expectation and the swap rates in the near term. Even ECB expects subdued activity this year.
- ECB's staffs are projecting inflation of 1.5 percent in 2016 and 1.8 percent in 2017.
Euro may continue its downfall as ECB moves ahead with the purchase programme but could stage a sharp comeback should the swap rates rise faster than expected.
