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Words to Watch: How to Detect Shifts by Europe’s Central Bank Words to Watch: How to Detect Shifts by Europe’s Central Bank
(35 minutes later)
FRANKFURT — With crucial elections approaching in France, the European Central Bank opted on Thursday against rocking the boat, leaving its monetary policy unchanged for the 19 nations using the euro.FRANKFURT — With crucial elections approaching in France, the European Central Bank opted on Thursday against rocking the boat, leaving its monetary policy unchanged for the 19 nations using the euro.
But that will not stop analysts and investors from parsing every word spoken by Mario Draghi, president of the bank. They will be listening for any subtle changes in language or tone that would signal a shift in the central bank’s thinking on the eurozone economy. But that did not stop analysts and investors from parsing every word spoken by Mario Draghi, president of the bank. They were listening for any subtle changes in language or tone that would signal a shift in the central bank’s thinking on the eurozone economy.
Here is a guide to phrases to listen for when Mr. Draghi speaks on Thursday: Here is a guide to phrases they were listening for, as Mr. Draghi spoke on Thursday:
The European Central Bank has promised to keep buying government and corporate bonds — a form of economic stimulus — until the end of the year, “or beyond, if necessary.”The European Central Bank has promised to keep buying government and corporate bonds — a form of economic stimulus — until the end of the year, “or beyond, if necessary.”
Observers of the central bank are obsessing about when in 2018 the bank might begin to wind down, or taper, those bond purchases. Mr. Draghi will probably bend over backward to avoid saying anything on Thursday that would raise expectations that tapering is on the horizon. Observers of the central bank are obsessing about when in 2018 the bank might begin to wind down, or taper, those bond purchases. Mr. Draghi had been expected to bend over backward to avoid saying anything that would raise expectations that tapering is on the horizon.
After every meeting, the central bank’s Governing Council issues a statement giving its view on the state of the economy in the eurozone.After every meeting, the central bank’s Governing Council issues a statement giving its view on the state of the economy in the eurozone.
The previous statement, in March, was slightly more bullish than in earlier months: “The risks surrounding the euro area growth outlook have become less pronounced,” the statement said, and the risks “remain tilted to the downside.”The previous statement, in March, was slightly more bullish than in earlier months: “The risks surrounding the euro area growth outlook have become less pronounced,” the statement said, and the risks “remain tilted to the downside.”
Any signal that the central bank is becoming more optimistic about growth among countries using the euro would cause analysts to recalibrate their forecasts of when tapering may begin.Any signal that the central bank is becoming more optimistic about growth among countries using the euro would cause analysts to recalibrate their forecasts of when tapering may begin.
A rise in the rate of inflation would put pressure on the central bank to ease its stimulus efforts.A rise in the rate of inflation would put pressure on the central bank to ease its stimulus efforts.
At its previous meeting, the bank said that an increase in the official eurozone inflation rate, to 2 percent, was the result of higher oil prices rather than being an indicator that the economy was heating up.At its previous meeting, the bank said that an increase in the official eurozone inflation rate, to 2 percent, was the result of higher oil prices rather than being an indicator that the economy was heating up.
There are “no signs yet of a convincing upward trend in underlying inflation,” the bank said last month. If the central bank starts to hint at concern about accelerating inflation, it would be another reason to expect tapering to begin sooner rather than later. There are “no signs yet of a convincing upward trend in underlying inflation,” the bank said last month.
If the central bank were to hint at concern about accelerating inflation, it would be another reason to expect tapering to begin sooner rather than later.
The bank has been saying for some time that it would not touch official interest rates until after it has stopped buying government and corporate bonds.The bank has been saying for some time that it would not touch official interest rates until after it has stopped buying government and corporate bonds.
Still, there has been speculation it could raise the so-called deposit rate — the interest that banks receive on money they keep at the bank — sooner.Still, there has been speculation it could raise the so-called deposit rate — the interest that banks receive on money they keep at the bank — sooner.
Since June 2014, the rate has been negative, meaning banks have had to pay the central bank to keep their euros safe. Any hint that the bank has been contemplating an increase in the deposit rate would be big news.Since June 2014, the rate has been negative, meaning banks have had to pay the central bank to keep their euros safe. Any hint that the bank has been contemplating an increase in the deposit rate would be big news.
Without fail, the central bank’s monthly statements beseech leaders in the eurozone to take politically unpopular steps to overhaul their economies by reducing red tape and making it easier for companies to dismiss unwanted workers.Without fail, the central bank’s monthly statements beseech leaders in the eurozone to take politically unpopular steps to overhaul their economies by reducing red tape and making it easier for companies to dismiss unwanted workers.
Just as reliably, politicians in the eurozone pay no attention whatsoever.Just as reliably, politicians in the eurozone pay no attention whatsoever.
But the emergence of Emmanuel Macron as the front-runner to become president of France means that a reformer could soon take charge of the eurozone’s second-largest economy after Germany. Mr. Draghi will probably resist the temptation to endorse Mr. Macron, but it is a safe bet that he is pleased.But the emergence of Emmanuel Macron as the front-runner to become president of France means that a reformer could soon take charge of the eurozone’s second-largest economy after Germany. Mr. Draghi will probably resist the temptation to endorse Mr. Macron, but it is a safe bet that he is pleased.