Mr Draghi took the hint from Bernanke and Carney and waved goodbye to the famous "we never pre-commit" mantra. Forward guidance may have been the lesser evil for the 'less-dovish' council members, but does it set the ECB on a slippery slope?
Europe still gets its fashion trends from the Anglo-Saxon world, even in the “conservative” world of central banking. Mr Draghi took the hint from Bernanke and Carney and waved goodbye to the famous “we never pre-commit” mantra, by stating “the council expects key ECB interest rates to remain at present or lower levels for an extended period of time”.
Who would have thought that? With the economy in recession, inflation at 1 ½ per cent and the decline in bank lending getting faster (-1.1 per cent yoy, May), it appears natural news that the central bank is NOT thinking about higher rates for the foreseeable future. Probably the ECB wanted to brush aside the somewhat hawkish impression sensed by markets after the last press conference. A rate cut would not have been unanimous, a non-opportune signal for the time being. So, forward guidance was the lesser evil for the less-dovish council members. Still, it sets the ECB on a slippery slope to having to respond to market pressure for concrete benchmarks for linking monetary guidance to economic indicators. And what about the admittedly very distant first rate hike, will the ECB then give a rate path or abolish guidance again?
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