ECB Meeting: One for the Specialists

Andrew Mulliner, a Global Bonds Portfolio Manager, shares his views on the outcome of Thursday’s European Central Bank (ECB) meeting, which as he explains was expected to be the hors d’oeuvre of the ECB’s policy review. In reality, it was more akin to a notification that the ECB would be cooking dinner.

Key Takeaways

  • The ECB meeting on January 23 concluded as expected: Rates were left unchanged,1 and the bank’s press statement was also mostly unchanged from the previous one, save for some upside tweaks to the language on growth and inflation.
  • For the ECB specialists, the focus of the meeting was the announcement of the ECB’s strategic review; however, the details on that front were disappointingly thin, and we are unlikely to learn much more until the conclusion of the review at the end of 2020.
  • A noteworthy aspect of the meeting was the prevalence of questions related to climate change, which will form part of the ECB’s strategic review.

As had been expected, Thursday’s European Central Bank (ECB) meeting was long on future revelations and strategic changes and short on action. ECB President Christine Lagarde, who took over from Mario Draghi in November, played the press conference with a straight bat, presenting a statement that was mostly unchanged from the previous meeting, save for some marginal upside tweaks to the language on expected growth and inflation. However, risks remain tilted to the downside. The ECB remains committed to its current course of accommodative policy for the foreseeable future and focused on ensuring that policy continues to support the euro-area economy.

For the ECB specialists, this meeting was all about the announcement of the ECB’s strategic review. However, the details presented during the press conference were disappointingly thin and not much better than the press release that followed. In fact, President Lagarde’s only admission during the press conference was the salient point from the press release: that the policy review would be all encompassing, assessing how the ECB delivers on its mandate, how they measure against it, how they communicate and the tools they use, as well as financial stability and environmental concerns. The reality is that we are unlikely to learn a great deal more until the conclusion of the review at the end of 2020.

Another noteworthy aspect of the meeting was the prevalence of climate change-related questions. Climate change will form part of the bank’s strategic review and, if Thursday’s conference was anything to go by, we should expect more questions and discussion as to how central bank policy can impact climate change and promote greener policies.

Markets have rallied strongly, but whether that’s due to “steady as they go” central bank policy (i.e., no major changes for one year until the review is concluded, quantitative easing and low rates for the foreseeable future, etc.) or reflective of the broader risk-off move we are seeing in markets is up for debate.

All told, Thursday’s meeting was expected to be the hors d’oeuvre of the ECB’s policy review; in reality, it was more akin to a notification that ECB would be cooking dinner. Disappointing, perhaps, but it was meant to be a meeting for the specialists.

 

1Main refinancing operations, interest rates on the marginal lending facility and the deposit facility remain unchanged at 0.00%, 0.25% and -0.50%, respectively.