ECB Insight: Amid the Clamour of ECB Hawks, a Dovish Trio Exploits the Quiet Period to Be Heard

8 April 2022

By David Barwick – FRANKFURT (Econostream) – As if to counter the growing perception that tighter European Central Bank monetary policy has become a juggernaut, three Governing Council members on Friday bent the rules of the ECB’s so-called quiet period somewhat in a demonstration of unified reluctance to endorse the dominant trend.

Participating in the panel discussion of a conference in Delphi, Greece were Central Bank of Ireland Governor Gabriel Makhlouf, Bank of Greece Governor Yannis Stournaras and Central Bank of Cyprus Governor Constantinos Herodotou.

Perhaps the absence of any representative of the other side of the spectrum of monetary policy philosophies created a certain dynamic; Makhlouf, whose comments to date have led us to consider him as probably leaning towards a 2022 rates lift-off, seemed no more eager than his two colleagues to change anything.

‘[W]hether or not we need to take action and when we might need to take action, I think that’s incredibly uncertain’, he said. He took the lead as well in highlighting the difference between the situations of the US and the euro area, making it clear that the difference wasn’t just about economic variables but rather the policy stance of the respective central banks.

‘The people see what the Fed is doing and therefore say the ECB needs to do the same thing’, he said. ‘That’s a mistaken conclusion.’

Stournaras, who has positioned himself all along as clearly against interest rate hikes any time soon, lived up to that, presenting the choice in the starkest of terms: ‘We could kill [high inflation] if we wanted … but if we do it this way, then we’re going to kill the economy, too.’

Herodotou, classified by Econostream as only probably against an increase this year in official borrowing costs, recurred to his preferred argument based on the need for all the conditions of the ECB’s forward guidance with respect to interest rates to be, as he reminded, ‘fully met in order to proceed with any changes.’

Like Makhlouf, it was important to him to observe that ‘the Fed policy is quite different, justifiably so, than the ECB policy.’

Of course, there were the obligatory assurances that if the ECB really, truly needed to do something, then it would of course act unhesitatingly:

  • Makhlouf: ‘There is absolutely no doubt at all that the Governing Council wants to and is going to deliver its mandate, which is to get inflation to 2% over the medium term.’
  • Stournaras: ‘… we’ll do whatever it takes not to let inflation, a temporary inflation becoming a structural and permanent one.’

But the message came through all the same: not everyone in the Eurotower is chafing at the bit to end net asset purchases and then increase borrowing costs.

It is worth recalling for context that, based on Econostream’s hawk-dove ranking, Makhlouf, Stournaras and Herodotou are among the seven most dovish members of the ECB Governing Council.

With an average rating between them of -1.25, which is strongly dovish on our scale, they are collectively and individually anything but representative of the Council as a whole, whose average is currently -0.05.

That is not by any means to discount their perspectives, which in any case they share with various colleagues, some of whom are more dovish yet.

But we do not believe that anything like a majority of the Council would share Makhlouf’s assessment that the need for and timing of further steps toward policy normalisation are ‘incredibly uncertain’.