MNI SOURCES -2: Concerns Raised Over ECB Communications Glitch

     LONDON (MNI) - Confusion in the markets over recent ECB policy signalling,

in which policy preparedness seemed to have become conflated with policy steps,

could pose problems for future ECB policy formulation, Eurosystem sources said

in comments to MNI.

     "The main message was that the ECB is willing to do whatever it takes to

push inflation up, but the message went too far - similar to (the episode) with

(interest rate) tiering," one official said. "The markets wanted to hear

something (after the June Governing Council meeting in Vilnius) and so they

interpreted (Draghi's address at the ECB Forum in Sintra in June) in the context

of additional measures."

     One official who spoke in terms of a communications "glitch" went on to

say: "Either our messages are not clear, (and instead are) vague, or reporters

and markets are misreading these."

     "The June meeting outcome was meant to be dovish, yet it was seen as

hawkish, so Draghi had to come out and stress our accommodative stance and

inflation target symmetry at Sintra," this official continued, insisting: "There

has been no acceleration, Draghi just reaffirmed key points that are lately

being overlooked, in clearer and more explicit terms."

     --MIS-MATCH

     The same official expressed concerns that a mis-match between the ECB's key

messages and their broader interpretation could ultimately affect policy, given

the role played by market expectations in the Governing Council's

decision-making process. "Do we communicate too much, too little, are we saying

the right things in the right way? This is starting to haunt us,"

     He added.

     Another source said Draghi's opening speech at last month's ECB Forum

offered "the same message as at Vilnius," but that it had been "a little bit

misunderstood." And another confirmed that the intention in Vilnius had been to

signal to the markets that the ECB stands ready to act,

     but: "For whatever reason, that signal was misread in terms of both timing

and technicalities."

     A further source said the gathering in Portugal had to some degree been

overshadowed by attempts to clarify the meaning behind the ECB president's

previous remarks.

     --COMPLEX MESSAGING

     Draghi himself described the message in Vilnius as a "complex" one during a

panel discussion in Sintra. "Maybe the markets need more time to get the message

through, or maybe the message was articulated in a poor way to begin with," he

conceded.

     "It's very difficult to assess, to explain, market reactions to our

statements. They depend on many and several factors," the ECB head continued.

"It also depends on how clearly this message is being perceived. Very often

messages like the one in the last press conference, which was quite complex - so

maybe people need more time to filter through."

     Philip Lane's first speech as Chief Economist should be seen as an attempt

to set out the ECB's methodology as much as possible at this point, another

Eurosystem source said, in terms of the thinking behind current and possible

future policy directions as well as restating the ECB's readiness to act if

necessary.

     The same official was sceptical regarding concerns over the ECB's recent

communications. "Draghi opened the door and other members of the Governing

Council have confirmed it, even the hawks like (Dutch Central Bank President

Klaas) Knot. There is always volatility and noise in market interpretations of

what we say."

     An ECB spokesman declined to comment to MNI on these matters.

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com

--MNI London Bureau; +44 203 865 3823; email: kevin.woodfield@marketnews.com

--MNI Frankfurt Bureau; +49-69-720-146; email: luke.heighton@marketnews.com

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