ECB Insight: Elderson Confirms 50-Bps to Be Discussed, Avoids Revealing Own View

8 May 2022

By David Barwick – FRANKFURT (Econostream) – European Central Bank Executive Board member Frank Elderson on Friday confirmed that a 50-bps rate hike will be on the ECB’s agenda shortly, but gave no indication as to whether he supported a policy move of that size.

In a Twitter interview, Elderson was asked whether, based on the premise that the ECB was significantly behind the curve, a 50-bps rate hike would ‘be more appropriate’.

‘Our approach to policy normalisation is completely data-dependent’, replied Elderson, without bothering to dispute the premise. ‘We will discuss this in detail at our June meeting’.

We note that Elderson said the ECB would discuss ‘this’. Not just generally how the ECB would proceed or ‘next steps’, but ‘this’, which in the present context referred to the possible expediency of moving by 50-bps.

We take this at face value and indeed already reported on April 21 that a discussion of a larger-than-currently-expected step was coming. From our point of view, Elderson has now confirmed this.

As we said at the time, 50 bps was not the baseline, and we have heard nothing yet to the contrary. As Elderson said via Twitter, it all depends on the data.

We all trust that the ECB bases decisions on data. As such, that part of his answer tweet may seem a truism. But what Elderson and other Council members are saying when they resort to this platitude to respond to a question is that circumstances are too unclear to venture a more specific answer.

That does not necessarily mean that circumstances are too unclear to respond to any variant of whatever the question is. Had Elderson been asked about a 75-bps rate hike (or, say, a 200-bps one, to make this clearer), we suspect that he would not have simply replied that it depended on data and would be discussed next month, but would rather have indicated in some form that he saw this as an unlikely scenario.

That he did not do so in the concrete case of 50 bps suggests that he does not rule the possibility out, which makes sense if it is going to be subject to discussion in June, something that surely cannot be said about a 75-bps hike.

Does he personally support such a move? It is possible. On Econostream’s ranking of ECB Governing Council members according to hawkishness/dovishness, Elderson comes in as moderately hawkish. When it comes to monetary policy, he plays his cards unusually close to his chest, which helps explain why on Twitter he five times referred the questioner to the June meeting.

As we wrote on April 21 based on a conversation with an ECB insider, ‘the ECB would not spring a 50-bps move on markets’. At the least, it would make clear that it was a viable option. In terms of doing that, confirming that the matter is up for discussion is certainly one possible way of starting.