ECB Insight: FT Underscores Uneasiness About Making Major Decisions too Soon

7 December 2021

By David Barwick – FRANKFURT (Econostream) – Tuesday’s Financial Times story suggesting a growing concern among European Central Bank policymakers about being too hasty to extend accommodation is less revelation than reminder.

For some time now, the number of question marks surrounding the need for massive accommodation to continue has been growing, which is why, as variously reported last week, a number of Governing Council members would prefer under the currently still-elevated uncertainty not to make decisions continuing such stimulus indefinitely.

Indeed, President Christine Lagarde herself suggested on Friday that the ECB could play it safe at its upcoming policy meeting and shy away from longer-term commitments.

As such, what the FT story does more than anything else is reinforce awareness of the scepticism already known to exist among monetary authorities who are less and less comfortable about what had been Plan A – making well-defined promises on December 16 regarding asset purchases.

Omicron is an additional argument that cannot be dismissed entirely, but it may still be somewhat early for one (unnamed) Council member to tell the FT that it is ‘clear that it will keep inflation up for longer because the disruption of supply chains will last longer’.

That particular source advances other arguments, none previously unfamiliar with the light of day, for why medium-term inflation could exceed the ECB’s target and require action.

The more immediately relevant comments are probably those of the other two sources the newspaper relied on, both of which simply reinforce last week's idea that decisions could be deferred.

The FT also reported two Council members to have said that central bankers were increasingly of the opinion that from the point of view of stimulating inflation, boosting monthly asset purchases was of little use, with one saying, ‘There is no point expanding the asset purchase programme after March.’

The FT went so far as to speak of growing ‘consensus’ among Council members about this, but some scepticism would be warranted before assuming that this view will prevail.

It is known that Austrian National Bank Governor Robert Holzmann would support ending asset purchases without delay, but Banka Slovenije Governor Boštjan Vasle’s expression of support for a temporary post-PEPP increase in the APP to avoid market turbulence seems a lot more likely to win the day than anything radically abrupt.