ECB Insight: ECB’s Lane Hints at Continued ‘Steady Hand’ Until December

17 June 2021

By David Barwick – FRANKFURT (Econostream) – European Central Bank Executive Board member Philip Lane on Thursday indicated that the September Governing Council meeting might be too soon for the ECB to abandon its current ‘steady hand’ and start beating a retreat from its ultra-accommodative policy stance.

After deciding one week ago to stay the course for another quarter, a reasonable assumption by observers was that the Governing Council would eye its September 9 monetary policy gathering as the logical occasion to, in a first step, reduce the pace of its asset purchases.

‘We’re going into a very interesting summer, and the challenge of preserving very favorable financing conditions - we have to keep our eye on that’, Lane told Bloomberg Television. ‘Going back to September, we will have new forecasts, but remember we have a very strong forecast for quarter three, but quarter three is not over until the end of September.’

‘We’re not necessarily going to have every piece of hard data you want to have going into the September meeting’, he added.

Lane’s comments refer to several facts, one of which is that the Eurosystem’s staff macroeconomic projections will next be updated in time for the September 9 monetary policy meeting of the Council. At this point, however, the flash estimate of third-quarter GDP growth, which the ECB’s baseline scenario is pegging at 2.8%, would still be almost two months off, as a given quarter’s initial growth estimate is only released at the end of the first month of the subsequent quarter.

That means that 3Q data would become available right around the October 28 Governing Council meeting, though the Eurosystem won’t revise its projections until the December 16 meeting, so that key information on which to base an important decision will be lacking.

Less clear is why Lane seems to attach such importance to 3Q GDP in the first place, but taken at face value, he appears to be pushing the timing of an ECB lift-off out to the end of the year. That would not be inconsistent with what ECB President Christine Lagarde said a week ago as well as in May when asked about tapering: ‘There’s no point losing ourselves in conjecture … it’s too early, it’s premature, its unnecessary to discuss those longer-term issues. … It will come in due course.’

Though neither Lagarde nor anyone else ever made precise the descriptive ‘longer-term’, from the standpoint of June 10, ‘longer-term’ certainly does not have to mean as soon as September 9, so that from this perspective, December was clearly an option.

Lane echoed Lagarde a bit, calling it ‘unnecessary and premature to talk about these issues.’

Asked explicitly if December could thus be ‘the big meeting’, he replied that it depended on the pandemic and called it ‘a multi-year challenge for us having accommodative monetary policy to bring inflation up towards where we want it to be. It's not a situation which is going to end very quickly. So so we do have a sustained campaign ahead of us.’

While Lane would be understandably unwilling to pre-commit at this point to extending the current pace of asset purchases an additional three months beyond what the Council only just decided – not least because it would doubtless elicit howls of protest in some quarters – on balance, his answer was about as clear a ‘yes’ as he could provide.

That said, it remains very early to assume this will be the case, barring unexpectedly pessimistic developments more in line with severe scenarios. Though Lane hastened to urge that one not ‘spend too much time trying to compare central bank priorities on both sides of the Atlantic’, yesterday’s hawkish surprise from the US Federal Reserve at least marginally relieves the pressure on the ECB to extend monetary accommodation yet again.