ECB meet: Expect rate cut, says National Australia Bank

He thinks Draghi is a very shroud and very clever operator. "He is much more activists than his predecessor, Trichet. I think that he is well aware of his responsibilities today. I have got confidence that he will handle his press conference in a way that it’s positive for the market," he adds.

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Below is the edited transcript of his interview with CNBC-TV18's Latha Venkatesh and Gautam Broker.

Q: What are your expectations from the ECB?

A: We think there is a chance of a rate cut today. We also think that there will be substantially more liquidity provided upon demand. In other words, Draghi will issue an invitation to the market to create the demand for more funds.

And then after the vacation season in Europe, the markets get back into full swing in September and October. He would be then able to supply into that freshly created demand that he himself was responsible for.

I think Draghi is a very shroud and very clever operator. He is much more activists than his predecessor, Trichet. I think that he is well aware of his responsibilities today. I have got confidence that he will handle his press conference in a way that it’s positive for the market.

Q: How does this work? How will he give money on demand? So, this is not LTRO where money was just forced in, this is something else that you are talking about.

A: In the LTRO, the money wasn’t forced in. The demand had to be there. So, the way of the squaring circle with the Bundus Bank is to say there is unmet demand and this is helping to ease the monetary transmission channel. The big battle is going on in Europe at the moment is not amongst the politicians.

The big battle is between ECB’s vision of the euro and the Bundus Bank’s vision of the euro. That is what we are going to get few clues on today. He will most certainly be asked whether or not the ECB cancel his unanimous in his opinion. It will be asked to comment on any splits and divisions and discussions taking place among the members of the governing council.

Q: Yesterday we did have a poll from the international wires saying that 18 out of 24 traders on the street are expecting something material from the Fed. That didn’t come through. But the stock markets are down about 0.3%. Do you see an encore today in the European markets where Draghi does some good speaking, but doesn’t deliver much, despite that the markets continue to hold up on expectations that they will intervene, when the need is there?

A: I think that’s exactly the outcome. The so-called worst case for markets is unlikely to materialise because they have come to understand and respect where the power lies. I do not think that they will be willing to take on Draghi. But markets realised that Draghi is serious. He probably doesn’t have to deliver the full monetary arsenal of weapons today.

He merely has to make it clear and they are there and able to be used. That, in-turn, should be able to buy enough time to get to the September meeting, when then the markets are thinking about full scale FOMC QE. They will be looking for bigger and more substantive policy actions from the ECB. Today, it’s largely about trying to buy four weeks. If he buys four weeks, it will be time well spent.