10 October 2019

Financial Times: Draghi ignored in-house ECB advice on QE restart

The European Central Bank decided to restart its bond-buying programme last month over the objections of its own officials, a further sign of how the move has reopened divisions within the institution.

The bank’s monetary policy committee, on which technocrats from the ECB and the 19 eurozone national central banks sit, advised against resuming its bond purchases in a letter sent to Mario Draghi and other members of its governing council days before their decision, according to three members of the council.

The leaking of the confidential contents of the committee’s letter comes as opponents to Mr Draghi’s loose monetary policy fight a rearguard action to put pressure on Christine Lagarde for her to change course after she takes over at the ECB on November 1.

It is one of the few occasions that the committee’s advice has not been followed in the eight years since Mr Draghi became president, a council member said. However, the committee’s opinion is not binding and has been ignored at least four times in as many years by the council, which is free to decide otherwise, an ECB official said. The ECB declined to comment.

The committee itself was split on restarting the bond purchases, which are known as quantitative easing (QE), after a nine-month hiatus in the €2.6tn programme. But a majority argued against it because the main reason for going ahead was to lower long-term interest rates and these had already fallen to record lows, the council members said.

Their views echo criticism made by governing council members who have spoken out publicly against the decision to restart QE since last month’s meeting, including the heads of the French and Dutch central banks.

The ECB has endured a bruising backlash since it announced plans to start buying €20bn of bonds a month from November. The move was part of a package of monetary-easing measures that included cutting interest rates further into negative territory and strengthening its guidance on how long the policies would last.

While the decision to cut interest rates to a record low of minus 0.5 per cent has grabbed headlines and been criticised by commercial bankers — such as the head of Deutsche Bank — it was widely supported within the governing council and the committee, where most opposition was over restarting bond purchases.

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