Exclusive interviews with leading policymakers that convey the true policy message that impacts markets.
Reporting on key macro data at the time of release.
Real-time insight on key fixed income and fx markets.
- Emerging MarketsEmerging Markets
Real-time insight of emerging markets in CEMEA, Asia and LatAm region
- MNI ResearchMNI Research
Actionable insight on monetary policy, balance sheet and inflation with focus on global issuance. Analysis on key political risk impacting the global markets.
- About Us
--Source Does Not Foresee Forward Guidance Revision At March Meeting
--ECB Trying To Avoid 'Wording Deadlock' Trap: Source
--Other Sources Say March Guidance Line Issue Still Open
LONDON (MNI) - The European Central Bank is likely to "gradually" revisit
its communication in the run-up to the end of the asset purchase program (APP)
in September, rather than issue a significant change at the March 8 meeting, a
Eurosystem source told MNI.
Other sources in the Eurosystem have indicated to MNI that the central
issue of forward guidance is still open and the formal line has yet to be agreed
for next month's Governing Council gathering.
But the initial source told MNI there is little point in amending guidance
now: "The fact that our confidence in reaching set inflation targets in the
short run is strengthening doesn't mean that the goal is around the corner. So
there's no point in altering the wording of our statement nor updating our
forward guidance," the source said.
Growth consolidation and a recent modest uptick in price levels across the
bloc may raise hopes but do not automatically translate into a change of
communication, this source argued. The Governing Council's March monetary policy
meeting will therefore be likely to leave its forward guidance unchanged, as the
current eurozone economy has certainly improved but the overall outlook hasn't
"We need to look at this from a different perspective," the source
suggested. "Considering how susceptible markets are to our wording, the fact
that our forward guidance hasn't changed but has stayed aligned to our
expectations is a positive element that boosts confidence."
The ECB is also trying to avoid being "trapped in the wording deadlock,"
the source argued. "In changing one or two words that could trigger market
frenzy ... the Governing Council wants to avoid being stuck in such quick sand
and believes this whole wording obsession needs be over".
However, according to the source, there will be a gradual evolution in the
ECB's communication between now and September when the APP is currently expected
"On the Governing Council there are different views between members who
would like to communicate the end before, and others later, but right now the
timing is not an issue of discussion," added the source.
--VICTORY CLAIM PREMATURE
The source also warned against hailing victory over deflationary risks
ahead of time.
"Although it's true that two years have passed since significant
deflationary risks were averted and there have been timid positive signals that
have boosted our confidence, the path ahead is still narrow," the source said.
Nonetheless, "the absence of bad news is the proof that we are moving
towards a more probable, yet progressive and gradual, inflation profile
increase," the source added.
The ECB's underlying optimism, however, was not linked to any expectation
of an acceleration in the inflation dynamics. "Most certainly we might see in
September that we have reached our target and all is well. But for the time
being we are sticking to a prudent approach that sees inflation remain weak,"
the source argued.
"The goal in the short run is to keep our sequencing unchanged. As of now,
the APP will last until September, alongside the current level of rates. Only
after the end of APP could rates be revisited, but at a much later stage," the
The key message the ECB was trying to get through at present, the source
said, is that abundant liquidity support to the banking system (i.e. fixed rate,
full allotment operations) will not end with the APP, but will be guaranteed
until at least the end of 2019.
Regarding the forward guidance, the exact choice of wording serves the
purpose of being flexible according to the outlook.
"We have said over and over again that we expect to keep interest rates at
their present levels well past the horizon of the net asset purchases. Well past
implies there is no set gap-time sequencing between the end of the APP and a
potential rate hike," said the source.
This vagueness is intentional because any decision to raise rates will
depend upon the "circumstances" of the eurozone's economy at that given moment.
"It is crucial that any rate increase does not occur before inflationary
and economic improvements have really consolidated," the source insisted.
--MNI London Bureau; tel: +44 203-586-2225; email: firstname.lastname@example.org