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Smooth-talking Lagarde faces first ECB grilling


FILE PHOTO: European Central Bank’s President Christine Lagarde arrives at the ECBs headquarter in Frankfurt, Germany, November 4, 2019. REUTERS/Ralph Orlowski//File Photo

New European Central Bank president Christine Lagarde makes her first monetary policy announcements Thursday, with observers watching for clues about the bank’s future direction and her plans for a major reassessment of its tools and goals.

A statement to be issued at 1:45 pm (1245 GMT) 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 about her planned “strategic review” of the ECB’s objectives and way of working.


The timing and scope of the huge undertaking 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.

“The ECB could announce the starting date –- likely in early 2020 -– of the first review of its monetary policy strategy since 2003,” said Berenberg bank economist Florian Hense.

With a background in corporate law, Lagarde is the first ECB chief who is not a trained economist.

But she is admired as an effective communicator.

“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.

Lagarde herself has appealed 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.

Unprecedented spat
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, the ECB slashed a key interest rate deeper into negative territory and kept others at historic lows.

The bank 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.

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 forecast to reach just 1.1 percent this year, while price growth remains stubbornly low despite years of stimulus.

Inflation stood at just one percent in November, fuelling debate about whether the goal is still appropriate.

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.

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 bring the bank closer to the public by ditching some of the jargon.


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