Eyes on steady-as-she-goes ECB for hints on strategy rethink

21 January, 2020 12:00 AM printer

FRANKFURT AM MAIN: European Central Bank watchers will eye the institution closely Thursday for hints about its first “strategic review” in two decades, with no change expected in its ultra-loose monetary policy settings.

“The governing council is sure to leave the main policy settings unchanged,” predicted Andrew Kenningham of Capital Economics, reports AFP.

Those key parameters were last updated in September, when former ECB chief Mario Draghi lowered a key interest rate and relaunched “quantitative easing” (QE) bond-buying in the face of fierce resistance.

Since taking over in November, new boss Christine Lagarde has patched up some of the wounds torn open during that meeting and its aftermath.

But the lack of immediate movement on policy places all the more focus on the much-hyped review.

The last such exercise dates back to 2003, before the financial crisis shook the eurozone economy and pushed the ECB into unprecedented interventions to keep the show on the road.

Nevertheless, “expectations that the bank will unveil a detailed scope and timetable for its monetary strategy review... may be disappointed,” economist Kenningham said.

What’s more, as the probe is set to last for all of 2020, there is little foreseeable impact on policy.

Lagarde raised hopes as she took office that climate change could become a key element in the ECB’s thinking.

But she has also sought to temper expectations, recalling that “the central bank’s priority mandate is price stability”.

Areas where the bank could act include “greening” its QE asset purchases, which have so far amounted to more than 2.6 trillion euros ($2.9 trillion) since 2015.

Buying bonds certified as fulfilling environmental standards could pose policy challenges.

“Given Germany has reduced carbon output less than other countries, would the ECB buy smaller quantities of its bonds?” asked Bruno Cavalier, economist at Oddo BHF.