Perceived split in ECB sends mixed messages to investors

Frankfurt am Main

THE European Central Bank is struggling to make its intentions clear to investors at a critical juncture in its response to the coronavirus recession.

Economists and investors see mixed messages from the ECB's top policymakers. Most important is a perceived disconnect between president Christine Lagarde's press conferences after policy decisions, and blog posts by chief economist Philip Lane the following day.

National central bank officials have taken note, expressing concern privately that such a dynamic risks undermining Ms Lagarde's credibility just as the ECB gears up for talks on whether to increase monetary stimulus. The officials asked not to be identified because internal deliberations are confidential.

The Frankfurt-based institution has even considered whether to change the practice of publishing a blog by Mr Lane after the policy decision, according to euro-area officials.

An ECB spokesman declined to comment.

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The ECB's communication challenge is all the more important right now as the euro area faces extraordinary uncertainty. Rising coronavirus infections are forcing new restrictions, while consumer prices are falling and under further downward pressure from a jump in the euro.

Any verbal confusion can tighten financial conditions and make the economic recovery from the pandemic even harder to sustain.

"The impression is that the chief economist and president don't send the same message on policy and that is creating some mismatch," said Piet Christiansen, chief strategist at Danske Bank.

"It's difficult to gauge if the president and chief economist are perfectly aligned."

Mr Lane's blogs started in March to provide the economic rationale for decisions, and he has published them after all but one of the president's press conferences since then.

The officials said there are no fundamental differences in policy approach between the two, adding that any perceived ambiguity by Ms Lagarde may reflect her desire to convey the sometimes conflicting views of Governing Council members.

Consequently, the president can appear relatively sanguine in her press conferences about the policy challenges, while Mr Lane's blogs have been more pointed.

For example, the euro rose on Sept 10 when the president signalled no pressing need for a monetary response to the strengthening currency. Mr Lane, who had earlier said the exchange rate "does matter," wrote the next day that it has "significantly muted" inflation.

"Certainly the market was surprised by the differing statements on euro appreciation," said Neil Jones, head of foreign-exchange sales to financial institutions at Mizuho Bank. "The price action said it all."

A surprise appointment to the presidency, given that she has never worked at a central bank, Ms Lagarde joined last November promising to build consensus after divisive spats among policymakers under her predecessor, Mario Draghi.

With 25 policymakers, the ECB is prone to cacophony. More signals are due this week with speeches by officials including Mr Lane and Ms Lagarde, and the account of last month's policy meeting. BLOOMBERG