New European Central Bank president Christine Lagarde makes her first monetary policy announcements Thursday, with observers hunting for clues to her leadership style and the bank’s response to stuttering eurozone growth.
A 1:45 pm (1245 GMT) statement is expected to unveil no change to predecessor Mario Draghi’s ultra-loose monetary policy following Lagarde’s maiden meeting of the ECB’s governing council in Frankfurt.
But the former International Monetary Fund chief can expect a grilling at the post-meeting press conference.
“Monetary policy involves a lot of subtle signalling and it remains to be seen if and how Lagarde will be willing to drop policy hints, or use code words to guide markets,” said Frederik Ducrozet of Pictet Wealth Management.
With a background in corporate law, she is the first ECB chief who is not a trained economist.
She is also admired as an effective communicator.
Lagarde has herself pleaded for patience, saying she has been on a steep “learning curve” since taking up the job last month.
“I am trying to learn German, but I am also trying to learn central bank language,” the one-time French finance minister told MEPs last week, acknowledging the market-moving impact of even a single ambiguous word.
Perhaps more than policy shifts, observers will be listening closely for hints about a “strategic review” — the institution’s first since 2003.
The timing and scope of the review remain unclear, but it could lead to a major shake-up amid calls for the ECB to rethink its inflation target and take more climate action.
– Tensions –
In his final act as ECB chief, Draghi in September unveiled fresh stimulus to bolster the 19-nation euro area, which has been weighed down by US-China trade tensions, Brexit uncertainty and a weakening manufacturing sector.
As well as offering a new round of cheap credit to lenders, Draghi slashed a key interest rate deeper into negative territory and kept others at historic lows.
He also restarted a controversial bond-buying programme to the tune of 20 billion euros ($22 billion) a month, in the hopes of encouraging spending and investment.
But several of the ECB’s 25 governing council members opposed the asset purchases, leading to an unprecedented public spat led by criticism from Germany’s Bundesbank central bank chief Jens Weidmann.
One of Lagarde’s first moves upon arriving in Frankfurt was to take the council on a retreat to heal the rift — and ECB watchers will be keen for an update.
– Tool kit –
The ECB will also unveil its latest growth and inflation projections on Thursday, which for the first time will run through to 2022.
Eurozone growth is slated to reach just 1.1 percent this year, while price growth remains stubbornly low despite years of stimulus.
Inflation stood well below target at one percent in November, fuelling debate about whether the goal is still appropriate.
The central bank’s inflation forecast for 2022 could hit 1.7 percent, Berenberg bank economist Florian Hense said — “sufficiently close” to rule out further stimulus for now.
While Lagarde has signalled she will stick close to Draghi’s easy-money policies, concerns are mounting about the negative impact of subzero rates on banks and savers.
Draghi’s final moves lowered the ECB’s deposit rate to -0.5 percent, meaning banks have to pay more to park their excess cash at the ECB.
Lenders have long complained that the fees, on top of the ECB’s other stimulus efforts, are squeezing their already tight profit margins in a low-rate environment.
Many eurozone banks are already passing the charges on to their wealthiest customers, but some German lenders have started charging even small retail clients for their savings — a deeply unpopular move in a nation of savers.
– Going green –
Faced with a slew of challenges, Lagarde is expected to echo Draghi’s frequent call for eurozone governments to support the economy through fiscal policy.
Unlike her predecessor however, Lagarde has been outspoken about the bank’s possible role in tackling climate change, which she has described as “high priority”.
That could range from building climate risks into the ECB’s economic models to greener investments.
The first female president of the ECB has also said she wants to push for more gender equality in top-level roles and bring the bank closer to the public by ditching some of the jargon.