Lagarde reveals her broad ECB review and her ‘owlish’ stance
The new ECB chief will ‘have her own style’ as she holds the bank’s deposit rate at a record-low with the option of another rate cut firmly on the table
Frankfurt — Christine Lagarde used her first full news conference as head of the European Central Bank (ECB) on Thursday to promise a broad and open-ended strategic review of the bank’s workings and served notice of a new style in communicating its thinking.
After ECB policymakers left its easy money stance unchanged as expected, Lagarde tackled, head-on, the keen anticipation in markets and media about how she would follow on from predecessor Mario Draghi, a technocrat who was hailed as one of the world’s best communicators of monetary policy.
The European Central Bank has kept rates unchanged following new president Christine Lagarde's first monetary policy meeting. Business Day TV spoke to Claus Vistesen from Pantheon Macroeconomics about the decision.
“I will have my own style. Don’t over-interpret, don’t second-guess, don’t cross-reference. I am going to be myself and therefore probably different,” she told reporters in what she billed as a short preamble before taking questions.
“You are not the only audience,” Lagarde told the assembled ECB press corps, saying she would use different, non-technical language to take the bank’s message to broader audiences.
She went on to announce that a planned review of how the ECB does business will aim to be finished by the end of 2020 and draw from a wide range of voices, including those from civil society and academia.
“It will aim [at] not just preaching the gospel we think we master, but also listening ... There is no preconceived landing zone at this point in time,” she said of the exercise, which mirrors a similar endeavour underway in the US.
US Federal Reserve chief Jerome Powell has also struck a much more consumer-friendly tone since taking over last year.
Lagarde confirmed that the review will weigh fundamental issues, including how technology and climate change affect policy, as well as addressing inequalities that she said “are certainly rising” in developed economies.
Dove, hawk ... owl
Financial analysts see the ECB on hold throughout 2020, a view that was strengthened by the Fed signalling on Wednesday that it is unlikely to touch US interest rates in 2020.
Former International Monetary Fund (IMF) chief Lagarde’s first policy decision did nothing to dispel those expectations. The ECB held its deposit rate at a record-low minus 0.5% while keeping the option of another rate cut firmly on the table. It also promised low interest rates for an extended period and kept the pace of bond purchases, aimed at lowering borrowing costs, steady at €20bn a month.
With several ECB board members having made public their discomfort with the latest stimulus measures announced by Draghi in September, Lagarde stressed her goal is to seek consensus. “Once and for all, I am neither a dove nor a hawk. My ambition is to be this owl that is often associated with a little bit of wisdom,” she said.
Lagarde also unveiled slightly tweaked economic projections for the eurozone, with growth in 2020 revised down to 1.1% from an earlier forecast of 1.2%, while inflation in the same year was put at 1.1%, still well below the ECB’s target of almost 2%.
For 2022, growth was put at 1.4% and inflation at 1.6% in initial projections. Lagarde said the staff forecasts, which foresaw inflation at 1.7% in the final quarter of 2022, are heading the right way but still fall short of the ECB’s inflation target of just less than 2%.
“It is certainly directionally good. But is it the aim that we pursue? No.”
Lagarde also urged the EU to decide which financial assets can be called “green” if it wants the ECB’s help in its fight against climate change.
Lagarde has called climate change “mission-critical” for the ECB but she faces political and technical constraints to fitting that into the central bank’s narrow remit of controlling inflation.
Her job was made even harder this week when the French Coreper body of EU states, grouping countries’ permanent representatives to Brussels, rejected a set of rules governing which financial products can be called “green” and “sustainable”.
The rules of taxonomy could have guided the ECB in steering its €2.6-trillion asset-purchase programme and its lending schemes towards sustainable assets. “Unfortunately, the Coreper has not found an agreement yet on taxonomy, which would be extremely helpful for us,” Lagarde said. “That’s our call to them; to find an agreement.”
The topic will be part of a broader review of the ECB’s strategy. “In our strategic review, we will take up climate change ... and see where and how we can participate in that particular endeavour,” Lagarde said. The review will also include the central bank’s inflation goal and how to achieve it.