ECB Insight: Option of Pause Takes Early Lead, Member-by-Member Review of Governing Council Suggests

1 August 2023

By David Barwick – FRANKFURT (Econostream) – The option of a pause at the 14 September meeting of the European Central Bank Governing Council appears to enjoy an early lead versus the lone alternative of yet another hike, but with most Council members not having pronounced themselves since last Thursday’s decision, it is too soon to call an outcome that will depend to a large extent on data available only when the time comes.

A review by Econostream of members’ individual stand on whether to hike or pause in September is nonetheless of interest. To the extent they have piped up since agreeing to leave both options on the table going forward, some have already revealed a reasonably clear preference, and with others, it is not hard to guess their likely inclination.

For example, Bank of Greece Governor Yannis Stournaras’ has voiced his opposition clearly both in the run-up to last week’s decision and since. ECB Executive Board member Fabio Panetta has been quieter of late, but his overall track record leads inevitably to the supposition that he would be among the first to embrace an end to the tightening.

Similarly, whilst National Bank of Slovakia Governor Peter Kažimír’s appeal on Friday (‘Today, I would say that our mission is still not accomplished and that we should continue with a firm step on the way to the top’) rather explicitly suggests that he leans toward hiking, in the case of Bundesbank President Joachim Nagel, it is the generally hawkish tone of his post-meeting remarks (‘Core inflation is persistent and therefore our monetary policy must be even more persistent. We need staying power.’) that tilted the balance toward assuming that he, too, would hike.

Many other Governing Council members’ likely position must remain a mystery for now, perhaps even until the last moment, what with silence apt to reign during the month of August and thus for most of the period between last week’s monetary policy meeting and the next.

In some cases, one might jump to the conclusion that a particular ranking on our hawk-dove scale should lead us to predict support for a corresponding Council decision.

We prefer to be somewhat more cautious and took this approach only in the case of dyed-in-the-wool hawks and doves. That explains why we assume that Panetta, as mentioned above, will prefer to pause, and Austrian National Bank Governor Robert Holzmann will argue for more tightening.

In other cases, things are a good deal less clear, and we indicate as much. Our cautious approach led us to consider ECB President Christine Lagarde’s stance on the matter as uncertain, even though our reading of her interview on Sunday is that she is laying the groundwork for a pause. And although Bank of Lithuania Chair Gediminas Šimkus argued in our interview just two weeks ago that ‘a hike should be one of the options that we discuss in September’, we don’t assume he couldn’t have cooled on the idea since.

Here are the details of how we think the individual members of the Governing Council are currently leaning with respect to the 14 September decision:

PAUSE (8 MEMBERS)

Ignazio Visco (Banca d’Italia)

Philip Lane (ECB)

Luis de Guindos (ECB)

Fabio Panetta (ECB)

François Villeroy de Galhau (Banque de France)

Yannis Stournaras (Bank of Greece)

Mário Centeno (Banco de Portugal)

Constantinos Herodotou (Central Bank of Cyprus)

HIKE (6 MEMBERS)

Isabel Schnabel (ECB)

Joachim Nagel (Bundesbank)

Pierre Wunsch (Belgian National Bank)

Mārtiņš Kazāks (Latvijas Banka)

Peter Kažimír (National Bank of Slovakia)

Robert Holzmann (Austrian National Bank)

UNCLEAR (12 MEMBERS)

Christine Lagarde (ECB)

Klaas Knot (De Nederlandsche Bank)

Tuomas Välimäki (Bank of Finland)

Madis Müller (Eesti Pank)

Boštjan Vasle (Banka Slovenije)

Gabriel Makhlouf (Central Bank of Ireland)

Gediminas Šimkus (Bank of Lithuania)

Boris Vujčić (Croatian National Bank)

Gaston Reinesch (Central Bank of Luxembourg)

Pablo Hernández de Cos (Banco de España)

Edward Scicluna (Central Bank of Malta)

Frank Elderson (ECB)