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MNI (London)
     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."
     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.
     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
     "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
     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:
--MNI London Bureau; +44 203 865 3823; email:
--MNI Frankfurt Bureau; +49-69-720-146; email:
[TOPICS: M$E$$$,M$X$$$,MT$$$$,MX$$$$,M$$EC$]
MNI London Bureau | +44 203-865-3812 |