ECB Insight: Muted Lagarde Interview Could Presage More ‘Steady Hand’

2 July 2021

By David Barwick – FRANKFURT (Econostream) – Perhaps the central message of the interview published Friday with European Central Bank President Christine Lagarde is that in fact there is no new message in need of conveying at the moment, at least not to financial markets, and thus no reason for the ECB to alter its ‘steady hand’ approach.

As much of the interview amounted to what Germans refer to by the invented English term Homestory, meaning a look at the interviewee’s private side, Lagarde – not for the first time - may well have had higher-order, longer-term, more domestic ambitions in mind in granting an interview to La Provence, Marseille’s leading socialist-leaning daily.

Still, if a few policy-relevant observations at this time last year had to be served up to the readership of ‘Le Courrier Cauchois’ – at under 40,000 not even half as large as La Provence’s circulation – then readers of La Provence could expect no less from the euro area’s leading monetary policymaker.

Those observations are quickly summarised:

  • The ECB ‘agreed to maintain [PEPP purchases and TLTROs] until at least March 2022, and in any case, until we judge that the coronavirus crisis phase is over.’
  • ‘While the recovery is now beginning to get under way, it remains fragile.’
  • For price stability, ‘we need a sustainable economic recovery. But we are not there yet.’
  • ‘We observe a price increase which is notably driven by two base effects. … However, these base effects will not last. We will see a return to lower rates of inflation as indicated in our projections. … We therefore expect inflation in the medium term to stabilise below our objective.’

All of this is familiar enough, but that is the point. The unspoken, overarching message is that the situation is unchanged. Uncertainty is still elevated. Price stability continues to be elusive. It remains early for a discussion of the withdrawal of ECB support.

With the next monetary policy meeting of the Governing Council still almost three weeks away, there is room yet for things to happen. But it is easy to imagine that an interview like this one could set the tone for that meeting, leaving the subsequent press conference to be dominated by questions not about tapering, but about the looming outcome of the strategy review.

With staff macroeconomic forecasts not due to be updated again until September, and with the delta variant of the Coronavirus raising some question marks about what most observers agree is the chief determinant of the recovery – namely the pandemic – there is certainly reason to think a quiet July 22 would not be inappropriate.

Lagarde described her ‘take-away of the overall analysis that we conducted, the joint assessment that we had and the conclusion that we reached’ on June 10 as ‘a steady hand.’ If any monetary policy conclusion is to be drawn from her interview with La Provence, it is that the ‘steady hand’ is still with us.