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Words to Watch: How to Detect Shifts by Europe’s Central Bank Europe’s Central Bank Sounds a More Upbeat Tone
(about 4 hours 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 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. But for analysts and investors — who parse every word spoken by Mario Draghi, the president of the bank, alert to even subtle changes in language or tone — there was plenty to focus on.
Here is a guide to phrases they were listening for, as Mr. Draghi spoke on Thursday: The upshot on Thursday was that the central bank’s Governing Council has become more optimistic about the eurozone economy, moving ever so cautiously toward the day when it will begin withdrawing its stimulus measures and, eventually, raise interest rates.
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 euro rose as much as 0.6 percent against the dollar shortly after Mr. Draghi started speaking, but it has since given up most of those gains.
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. Here is a guide to phrases they were listening for as Mr. Draghi spoke on Thursday:
The European Central Bank repeated its promise 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. A few subtle changes in the language used by Mr. Draghi signaled that the central bank is laying the groundwork for tapering, but that it is still on the distant 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 those in earlier months. Thursday’s update continued the trend toward more optimism. Mr. Draghi described the eurozone economy as “increasingly solid” and said “downside risks have further diminished.”
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. But the change in tone was not so significant that it caused most analysts to recalibrate their forecasts of when tapering might 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. On Thursday, Mr. Draghi repeated the central bank’s view that higher inflation was most likely temporary. “Underlying inflation pressures continue to remain subdued and have yet to show a convincing upward trend,” he said.
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.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 had 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.
Questioned repeatedly about the issue Thursday, Mr. Draghi said the bank’s stance had not changed. Interest rates will not rise until the bond buying is over.
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’s.
Mr. Draghi declined to comment on the French elections. But a question about the vote prompted him to embark on a long discourse on how reforms would increase productivity and cut unemployment. Some countries have made changes, he said, without specifying which ones. “The picture is not uniformly bleak,” Mr. Draghi said.
While also declining to comment on American politics, Mr. Draghi said he was less worried that the Trump administration would take measures that would interfere with world trade. “The risk of protectionism may have somewhat receded,” he said.