Draghi aims for consensus; rate-cut on the cards:StanChart

Below is an edited transcript of the analysis on CNBC-TV18.

Q: What do you expect from Ben Bernanke and how do you think the markets are positioned? For the past on week, most have been dithering at their highs, unwilling to go higher. Do you think the markets will be disappointed?

A: According to the Fed minutes, it had flagged that there was no concern and possibility of any further QE since the meeting at the beginning of August. But the US data has come in a little bit stronger. Retail sales has been good, there has been a rise in employment and the housing market is turning around. So we think that the Fed will probably hold its fire at the the FOMC meeting in mid-September.

Regarding what Bernanke is likely to announce at the Jackson Hole meeting on Friday, we are looking forward to an acknowledgement of the improvement in the economy and outline once again the circumstances under which the Fed might feel the need to take action to ease policy.

He might also explain on the sort of easing that would be initiated. But I think that he will be very reluctant to run the FOMC meeting. So there isn’t going to be a repeat of the announcement regarding another round of QE made by Bernanke in Jackson Hole in 2010.

Q: In a column in Die Ziet, Draghi pointed out that it was important to build consensus around Germany's current opinion and he did not want to explicitly go against what the Bundesbank’s opinion. Do you think this is an indication that Draghi is not going to announce anything that is going to be explicitly rejected by the Bundesbank in the September 6 meeting?

A: The ECB can go ahead even if it doesn’t have the wholehearted support the Bundesbank and indeed that’s what it did when it launched the securities market programme the first time around. It went ahead with bond purchases even though the Bundesbank was against the process.

So I wouldn't say that his comments indicate that the ECB is not going to take any action. He is trying to build consensus. I think he has the backing of Merkel and the higher the echelons of government, but perhaps lesser support from the rank-and-file in Parliament. So, the Bundesbank is cautious about the need for any further bond purchases.

There might be a delay in the announcement. The ECB is supposed to be working on the technical arrangements and essentially revealing the details of how it would go about holding borrowing costs lower for the peripheral countries. Much of the details may not be revealed at the meeting on September 6.

Though there maybe a vague reference, the market will know about it only when the ECB takes action. The ECB has certainly signaled that it is likely to target the short-end of the yield curve. So we anticipate bond purchases of one to three at the end of the year.

Q: How many of these are you expecting to be announced on September 6?

A: We think there is still a chance of a 25 bps rate-cut being announced on September 6. But if the ECB hasn't got the full details of the bond-purchasing programme by then, it is likely that it will announce other policy measures which may include easier collateral terms ahead of another LTRO.

Some of the data released by the European central bank on Wednesday showed that bonds-purchases by banks was falling in countries like Spain and there is a need for injection of further liquidity.