By Marta Vilar – MADRID (Econostream) – Econostream’s ECB Tone Meter moved in opposite directions across its two indices this week, with the Governing Council becoming slightly more hawkish while the Executive Board pared back some of its hawkishness.
The Governing Council index increased to +1.53 from +1.44 last week, while the Executive Board declined to +0.88 from +0.94 last week.
Policymakers, namely national central bank governors, increasingly suggested that the direction of rates was clear, with some members even pointing to the possibility of a hike at the next Governing Council meeting on June 11.
Biggest Movers of the Week: Nagel, Rehn and Wunsch
Deutsche Bundesbank President Joachim Nagel, who last week said rate hikes were becoming “increasingly likely,” softened the strength of his comments this week but remained hawkish and continued to point to possible ECB action. This time, he said the likelihood of moving away from the baseline scenario was now higher, “and that means that maybe we have to do something.”
Latvijas Banka Governor Mārtiņš Kazāks was more explicit about the direction of that action, saying it was “relatively clear” what it would be.
Other governors, including Bank of Finland Governor Olli Rehn, National Bank of Belgium Governor Pierre Wunsch, Eesti Pank’s Madis Müller and Central Bank of Malta Governor Alexander Demarco, explicitly mentioned the possibility of a June hike.
Demarco said such an outcome “probably might” be needed, while Müller said there was a “good case” for an upward move on June 11. Rehn said a hike in June could be necessary to protect the ECB’s credibility, a rationale also cited by Demarco in relation to a possible move at the next meeting.
Wunsch, meanwhile, still attached some conditionality to the possibility of a June hike, saying that the likelihood of such a move on June 11 would be “quite high” if the war was not over by then.
Dominant Themes in This Week’s Communication: Credibility and Hints at Moving Away from the Baseline Again
Two themes stood out in policymakers’ remarks this week. First, credibility was cited as a reason for hiking soon by doves such as Rehn and Demarco.
Second, some hawks again described the outlook through the ECB’s scenario analysis, with the emphasis shifting toward more adverse outcomes. Nagel said, “[w]e are moving away from the baseline scenario,” while Kazāks said conditions were between the baseline and adverse scenarios.