Top officials in the European Central Bank are at odds over how to inform the markets about plans to wind down the bank’s €2.3tn quantitative easing programme, one of the most sensitive issues it is facing.
The asset purchase programme has made the ECB the biggest player in the eurozone’s bond markets and a rift has emerged over how quickly the bank should reveal details of its exit strategy.
Some policymakers worry that saying too much too soon will lead to a dramatic sell-off of the kind that rocked markets when the US Federal Reserve first announced its own plans to end QE in 2013, a move that drove up bond yields and the dollar.
Others worry that saying nothing about the eurozone’s improving economy will lead to the bank being overtaken by events.
The divisions involve two of the most influential members of the ECB’s executive: chief economist Peter Praet and markets expert Benoît Cœuré.
In comments made in April but only published on Thursday, Mr Praet warned other members of the governing council to stay relatively tight-lipped on the issue. According to the ECB’s regular summary of its meeting, he cautioned that markets had become “particularly sensitive to any perceived change in the future course of monetary policy”.
The governing council set to meet in Tallinn on June 8 to discuss whether the eurozone’s accelerating recovery is sturdy enough to change officials’ talking points to delete a promise to do more, should conditions worsen again.
Mario Draghi, ECB president, is also keen to keep quiet to give the bank as much flexibility as possible in setting the course of its exit from a programme under which it is still buying €60bn-worth of bonds a month.
But Mr Cœuré told Reuters in an interview published on Thursday that the ECB needed to change its communication on the recovery soon — or risk losing its credibility.
When asked if it was better for the ECB to veer on the side of acting too late instead of too early, Mr Cœuré said: “I don’t see that argument as being very convincing when it comes to communication. The communication of the governing council has to remain in line with facts and an evolving reality.”
He added: “There’s always the temptation of gradualism in monetary policy. Too much gradualism in monetary policy bears the risk of larger market adjustments when the decision is eventually taken. That’s the way I would see it.”
Mr Praet said at the meeting in April that any “substantial change” in communication could not be made without more evidence of stronger growth, as well as signs that the recovery was reflected in stronger price pressures.
While the minutes said that policymakers broadly agreed with Mr Praet’s remarks, they also suggested that members of the council held very different views on the strength of the eurozone’s economic recovery.
Members clashed on whether domestic risks to the eurozone’s recovery had entirely diminished, with pessimists citing low wage growth and a lack of investment as signs that threats to growth remained.
Optimists, however, thought the economy’s resilience to political risks was evidence of its strength, arguing that less uncertainty would lead to even stronger growth.
The majority of the council agreed that, while improved, risks remained “tilted to the downside”.
But some said that threats to growth could now be seen as “broadly balanced, in particular given the improvement in recent data and indicators and the decline in political uncertainty”. None of the officials who dissented backed any changes to policy.
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