-
Policy
Policy
Exclusive interviews with leading policymakers that convey the true policy message that impacts markets.
LATEST FROM POLICY: -
EM Policy
EM Policy
Exclusive interviews with leading policymakers that convey the true policy message that impacts markets.
LATEST FROM EM POLICY: -
G10 Markets
G10 Markets
Real-time insight on key fixed income and fx markets.
Launch MNI PodcastsFixed IncomeFI Markets AnalysisCentral Bank PreviewsFI PiFixed Income Technical AnalysisUS$ Credit Supply PipelineGilt Week AheadGlobal IssuanceEurozoneUKUSDeep DiveGlobal Issuance CalendarsEZ/UK Bond Auction CalendarEZ/UK T-bill Auction CalendarUS Treasury Auction CalendarPolitical RiskMNI Political Risk AnalysisMNI Political Risk - US Daily BriefMNI Political Risk - The week AheadElection Previews -
Emerging Markets
Emerging Markets
Real-time insight of emerging markets in CEMEA, Asia and LatAm region
-
Commodities
Commodities
Real-time insight of oil & gas markets
-
Credit
Credit
Real time insight of credit markets
-
Data
-
Global Macro
Global Macro
Actionable insight on monetary policy, balance sheet and inflation with focus on global issuance. Analysis on key political risk impacting the global markets.
Global MacroDM Central Bank PreviewsDM Central Bank ReviewsEM Central Bank PreviewsEM Central Bank ReviewsBalance Sheet AnalysisData AnalysisEurozone DataUK DataUS DataAPAC DataInflation InsightEmployment InsightGlobal IssuanceEurozoneUKUSDeep DiveGlobal Issuance Calendars EZ/UK Bond Auction Calendar EZ/UK T-bill Auction Calendar US Treasury Auction Calendar Chart Packs -
About Us
To read the full story
Sign up now for free trial access to this content.
Please enter your details below.
Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.
Real-time Actionable Insight
Get the latest on Central Bank Policy and FX & FI Markets to help inform both your strategic and tactical decision-making.
Free AccessMNI INTERVIEW: ECB Risks Losing Credibility: DIW's Fratzscher
--ECB Needs To Reassess Mandate, But Not Lower Target, Former International
Policy Head Says
--No Rate Hike Seen Before 2021
By Luke Heighton
BERLIN(MNI) - The European Central Bank risks losing credibility if it
continues to miss its 2% inflation target, its former Head of International
Policy Analysis told MNI, adding that he did not anticipate any interest rate
rises before 2021 and that central banks should communicate less.
"Low inflation is not specific to the euro area," Marcel Fratzscher said in
a March 18 interview in Berlin, "but it is very dangerous, because the
credibility of a central bank depends on its ability to meet its mandate."
Fratzscher, identified by the German press as a potential head of the
Bundesbank and currently president of the independent German Institute for
Economic Research, known as DIW Berlin, was commenting on a recent call for a
review of ECB monetary policy strategy by Finnish central bank governor Oli
Rehn, who fears trust in central banks' ability to influence inflation is being
eroded.
"I wouldn't say the ECB has low credibility," said Fratzscher, who left the
ECB after more than a decade in 2012. "It has a high credibility, but one should
not underestimate the risks if a central bank misses its mandate for too long.
We need a strategic review of the mandate, but please do not use it as an easy
way out of the dilemma and lower your inflation target."
Prospects for the ECB meeting its prices target dimmed further in March,
when the Bank cut its 2019 inflation forecast to 1.2% from 1.6%, and slashed its
growth outlook. The eurozone's recovery is lagging that of the U.S. by four to
five years, Fratzscher said, adding that the neutral level of interest rates may
have fallen to around 3%, from 5%-6% in the past. Any ECB tightening remains a
long way off.
"My hunch is we won't see the first step on the policy rate before early
2021. On the deposit rate it could be that if things really go well next year
that it will be taken back closer to zero in one step or two."
--TLTRO SURPRISE
Fratzscher said he was surprised by the ECB's March 7 announcement of a
third round of targeted longer-term refinancing operations.
"On the one hand, I thought 'Wow, the ECB is a lot more worried than I was
so far,' so the risks must be absolutely gigantic," he said. "The second,
positive element, was to say that the ECB wants to be ahead of the curve, and it
is acting now rather than later."
A return to quantitative easing would be an option should the eurozone
economy continue to weaken, Fratzscher said, adding that limits on the amount of
bonds the ECB can buy from individual issuing countries could be extended. It
could also broaden its purchases of private sector assets, he said.
"It would be very unpleasant for the ECB if it had to revert back to
further non-standard measures, but I think it would do it."
Fratzscher said that the ECB "has done fairly well" in its use of forward
guidance, but that this be would be better if it were less explicit and more
conditional, even if markets do not like, or want to understand, conditionality.
"The big risk of forward guidance is that markets get hooked, they don't
consider their own private information any more, and they become too focused on
what the central bank is telling them. My hope is that the ECB will provide a
bit of forward guidance on the interest rate until the end of the year, but then
stop doing it," he said, adding that this would depend to some extent on their
ability to reach their inflation target.
"I think that, not just for the ECB but for most central banks, there has
been too much communication over the last 10 years, that central banks have been
too dominant."
--MNI London Bureau; +44 203 865 3829; email: jason.webb@marketnews.com
[TOPICS: M$E$$$,M$G$$$,M$X$$$,MT$$$$,MX$$$$,M$$EC$]
To read the full story
Sign up now for free trial access to this content.
Please enter your details below.
Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.