Graffiti outside the ECB's future headquarters. (Getty)
Could the European Central Bank be learning a thing or two about managing the message? Ahead of Thursday’s interest rate-setting meeting, when policymakers will want to do nothing more than say “we’re holding steady”, it looks like the bank may come up with an eye-catching announcement to give everyone something to write about.
That something is the long-running and vexed question of why the bank that loves to tell you how transparent it is (well, at certain times, once you’ve cleared security and as long as you understand no quotes should be used from this conversation) keeps the minutes of its governing council meetings secret for 30 years. The practice makes it an outlier – the Federal Reserve, Bank of England and Bank of Japan all publish minutes of their monetary policy meetings within a month of the meeting that they cover. Read more
From the FT on Wednesday:
Vince Cable, business secretary, has lifted the lid on tensions between the government and the Bank of England criticising its “capital Taliban” whom he accuses of holding back the recovery by imposing excessive financial burdens on the banks.
London’s weather has been balmy and hot since Mark Carney became Bank of England governor. Only marginally less absurd have been other reviews of his first week in the job such as the BBC’s efforts to link a 6 per cent rise in equity prices to his tenure at Threadneedle Street.
The FT gave a more sober analysis of the first week on Saturday, pointing out how difficult it is for anyone to fight the Fed. The BoE’s statement on Thursday that rises in market interest rates since May were not warranted, seemed not to have impressed government bond or forward interest rate markets much by the end of the week.
A few days on, it is only fair to have another look. And the delayed reaction is more favourable to Mr Carney’s action, although it remains far too early to declare victory for forward guidance. Read more
After ditching its long-standing policy of never commenting on future interest rates in order to launch “forward guidance” last week, the European Central Bank has landed itself into something of a pickle as to what it really means when it says rates will stay at or below their current level for an “extended period”.
Mario Draghi, ECB president, was pressed on the question immediately after launching the policy last Thursday and said:
Well, I said an extended period of time is an extended period of time: it is not six months, it is not 12 months – it is an extended period of time.
That is from the official ECB transcript and has punctuation that helps to suggest that Mr Draghi was refusing to say it was any given period of time. However it was also clearly open to misinterpretation and that is why a certain amount of briefing took place after the press conference in which officials made clear that what Mr Draghi meant to do was avoid giving an answer on a time frame, rather than suggest rates would be low for at least 12 months.
So today’s comments by Jörg Asmussen, a member of the six-person ECB executive board and close ally of Mr Draghi, were all the more surprising. Read more
The market thinks the June jobs report is taperific and that looks basically correct: at this pace of payrolls growth a September slowing of QE3 seems likely. But there are enough complications to make the market reaction – 10-year Treasury yield up eighteen basis points at 2.68 per cent – look over the top. Read more
What is forward guidance?
Forward guidance has been around for a while (it was pioneered by the Reserve Bank of New Zealand 16 years ago) and can take many forms.
But, as the FT’s Frankfurt bureau chief Michael Steen writes here
, all of them boil down to saying — or at least hinting at — what you’re going to do before you do it.
Until recently, guidance usually involved central banks using a mix of their economic projections and their inflation targeting frameworks to show markets whether their expectations of the direction and timing of policy changes were right or not. It was all a bit techy and abstruse.
Most of the focus recently has been on forms of forward guidance that the public — as well as markets — can easily understand. These more explicit forms of forward guidance involve central banks promising to keep monetary policy ultra-loose either until a fixed point in the future, or until economic conditions pick up.
For many years, one of the most enduring mantras of central banking was along the lines of “we never pre-commit to future actions, because all of the information we have about the state of the economy is already contained in the actions we have just announced”. Now that has been completely abandoned. With the ECB and the BoE changes announced today, the central banks are shouting from the rooftops that “we are all forward guiders now”. Read more
Mario Draghi, the European Central Bank president, pulled off the feat of sounding incredibly doveish today while keeping rates on hold and actually making sure his room for manoeuvre remains as wide as possible. Here are five quick takeaways from the press conference following this month’s meeting: Read more
Hello and welcome to our live blog on the European Central Bank’s press conference. The governing council held rates today, as expected. But ECB president Mario Draghi might offer some clues on what’s to come from the central bank in the months ahead. Mr Draghi is due to begin speaking at 13.30 UK time.
By Claire Jones and Lindsay Whipp. All times UK time.