Mario Draghi

Everything a trader should know about Mario Draghi, president of the European Central Bank. Find out his policy on interest rates, how that affects the markets, and much more.

Or, take a look at why the European Central Bank’s monetary policy meeting is so important to traders. 

Who is Mario Draghi?

Mario Draghi is the current president of the European Central Bank (ECB). He’s been in the post since November 2011, and his term is due to end in November 2019.

Before joining the ECB, Mario was governor of the Bank of Italy (BoI) and head of the Financial Stability Board (FSB). He was replaced as head of the FSB by Mark Carney.

Mario and the markets

Which markets should you be watching as Draghi nears the end of his term?

Forex

Draghi’s time in charge has seen the euro falter against the dollar significantly, particularly in 2014 when he announced that the ECB would become the first major central bank to cut rates below zero. Over the next ten months, the euro crashed from $1.36 to $1.05.

EUR/USD then hit a 15-year low at the end of 2016, a year that saw rates cut further across the board and new quantitative easing (QE) measures introduced.

However, returning confidence saw EUR recover in 2017 and beyond, hitting $1.25 in early 2018. If monetary policy gets looser towards the end of Draghi’s term, it could rise yet further. Watch EUR/USD and EUR/GBP.

Shares and indices

The DAX was below 6000 when Draghi took up his presidency. Six years later, it broke 13,000 for the first time. The story is similar for other key European indices: the CAC 40 rose 70% over the same period and the EU Stocks 50 rose 50%. European businesses, clearly, benefitted from the weak euro, poor returns for savers, and cheap debt that were staples of Mario’s first six years in charge. 

But the good times couldn’t last. In early 2018, global stocks saw a widespread sell-off, and Europe was no exception. Will share prices recover before Draghi departs his post? Only time will tell. Watch the DAX, CAC 40 and EU Stocks 50.

Bonds

The scale of the ECB’s asset purchase programme – which involves buying corporate and public sector bonds – has pushed up prices on markets like the Bund, Buxl and BTP. But with this QE programme cut by 50% for January to September 2018, taking it to €30 billion a month, we might see bond prices drop and yields increase before Draghi’s presidency is over.

Much will depend, though, on how quickly the ECB scales back its asset buying. If Draghi remains dovish in his outlook, the European bond prices could stay high beyond the end of his term. Watch the German Bund, Buxl, Schatz and Bobl, plus the Italian BTP.

Mario and the ECB

Many on the markets call Draghi ‘Super Mario’, but does he deserve the nickname? Let’s take a look at three key areas of Draghi’s presidency to see how he’s faired – and how the rest of his term could shape up.

He’ll do whatever it takes to save the euro

When Draghi took over the ECB, the eurozone was mired in crisis. Greece, Portugal, Ireland and Cyprus had all required bailouts, and Grexit looked like a strong possibility. The future of the euro was deeply uncertain.

In July 2012, political progress was slow, and all eyes were on the ECB to see what Draghi had planned. He vowed that ‘the ECB is ready to do whatever it takes to preserve the euro’ at a speech in London – following it up with ‘believe me, it will be enough’.

His statement helped ease fears surrounding the future of the currency union, and unsustainably high borrowing costs for key EU states began to drop. The speech also set the tone for the rest of his presidency, as he introduced a slew of new measures to save the euro.

He’s purchased a lot of assets

Draghi had already introduced new measures to help the eurozone by the time of his speech in July 2012. As well as committing to buying more bonds using the ECB’s asset purchase programme (APP), he’d announced a new round of loans to European banks under the long-term refinancing operation (LTRO).

But those initiatives pale in comparison to after the speech. First of all, there was the implementation of outright money transactions (OMT), whereby the bank would buy short-dated bonds in struggling eurozone member states. While OMT was never actually used, it helped reassure the markets that there was resolve to Draghi’s rhetoric.

Then there was the expansion of APP in 2015. For a year from 2016, the ECB was buying €80 billion in assets on average each month. In 2017, its balance sheet totalled almost €4.5 trillion

 

He’s reduced interest rates below zero

One of the earliest acts of Draghi’s term was a cut to interest rates, reversing two late rises from his predecessor, Jean-Claude Trichet. Further cuts followed, and on 11 June 2014 it was announced that the ECB would drop rates below zero for the first time ever. It was a dramatic move.

Only one of the bank’s three interest rates – the deposit facility – was actually cut below zero. In effect, it meant that the ECB would charge commercial banks to deposit capital overnight instead of paying interest. 

The record-low rates and asset buying had the desired effect, with no countries exiting the euro during Draghi’s time in charge.

 

Mario Draghi: hawk or dove?

In his first five years in charge, Draghi oversaw a total of nine cuts to interest rates. Even as his ECB took a more hawkish view – with the announcement of soon-to-be-looser monetary policy in early 2018 – his plans remained firmly dovish. Rates will not rise until QE is over, he said, and even then at a ‘measured pace’.

Draghi’s commitment to dovishness could well have a lasting effect beyond the end of his term. If the market expectations are for slowly raising rates beyond the end of 2019, his successor would find it hard to change tack.

Mario Draghi biography

Mario Draghi (born 3 September 1947) is an Italian economist who serves as the current president of the ECB. He has a degree in economics from Sapienza University in Rome, and a PhD in the same subject from the Massachusetts Institute of Technology (MIT).

Draghi worked at Goldman Sachs for three years before taking over the Bank of Italy (BoI) in 2005, a post he held until taking over the ECB in 2011. During his time at the BoI, he also served as the head of the FSB.

Before Goldman Sachs, Draghi held a variety of posts, including:

  • Director general of the Italian treasury
  • Executive director of the World Bank
  • Professor of economics and monetary policy at the University of Florence

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