Exclusive: ECB Insider: Lagarde Did Not Push for 50bp

9 September 2022

By David Barwick – FRANKFURT (Econostream) – European Central Bank President Christine Lagarde did not express support for a rate hike of 50bp at this week’s Governing Council meeting, according to an ECB insider who spoke to Econostream.

Although a report shortly before the meeting suggested that Lagarde would prefer 50bp, she did not push for any particular outcome and instead took care to ‘let the group express itself as a group’, the person said.

‘She acted strictly as chairperson, and I admire how she goes about it’, the meeting participant said. ‘She’s managing group dynamics, group spirit, and that’s very important, because there have been others in the position who pushed their own agenda, their own thinking. But she’s a chairperson in the real sense of the word.’

The decision in favour of 75bp was truly ‘collective’, he said, even if the discussion included ‘arguments to move at a slower pace.’ The larger move faced ‘no major objections.’

‘There was someone who said, “I would go for 50”’, he said, but even that person conceded, “I also see merit in 75.”’

Whereas in July ‘the hawks were pushing strongly’, leading to a give-and-take result, the outcome this time around was ‘a bit different than a compromise’ and more appropriately characterised as a ‘common understanding’, he said.

Fifty and 75bp were the only serious options, he said. ‘There was no one who said, “Maybe 100 would be better”’, he said. ‘We should be pragmatic.’

That Chief Economist Philip Lane, who earlier had indicated a preference for more gradual moves, proposed increasing the key interest rates by 75bp should be seen as a reaction to the data, this person suggested.

Still, in response to the assertion that it might also be that Lane simply realised that the larger rate hike had wide support and wouldn’t want to back a losing option, the person diplomatically said, ‘I think you answered your question.’

However, he vigorously defended the ECB and its chief economist against the suggestion that they had been wrong in the past, arguing that monetary policy had always taken into account all available information and had been thwarted by unforeseeable developments.