ECB Keeps Rates on Hold as Christine Lagarde Makes Debut as President--Update
December 12 2019 - 9:09AM
Dow Jones News
By Tom Fairless
FRANKFURT -- The European Central Bank joined the Federal
Reserve Thursday in pausing a wave of monetary easing, leaving its
key interest rates unchanged at Christine Lagarde's first policy
meeting as the bank's president.
ECB officials are waiting to see the impact of a package of
interest rate cuts and large-scale bond purchases unveiled in
September, when it cut its key rate to minus 0.5%. These measures
were pushed through by former President Mario Draghi despite strong
resistance from some members of the bank's rate-setting committee,
which includes all 19 national eurozone central bank governors.
Some of those officials worry that the ECB's easy-money policies
hurt banks and subsidize profligate governments.
Ms. Lagarde has indicated that she wants to seek greater
consensus among the region's central bankers, who are increasingly
divided over the benefits of the bank's policies.
The export-oriented eurozone has been particularly impacted by
tensions surrounding international trade and a slowdown in China.
Recent data have suggested the eurozone economy might be bottoming
out, but the near-term outlook remains unclear, with industrial
output falling again in October, according to data published on
Thursday.
The Federal Reserve also held interest rates steady on Wednesday
after lowering rates at its three previous meetings to guard the
U.S. economy against the effects of trade tensions. Fed officials
indicated they are comfortable with leaving monetary policy on hold
through next year while keeping an eye on those risks.
Investors will listen closely to Ms. Lagarde's inaugural news
conference at 08:30 ET for an early glimpse into her leadership
style and policy plans.
Ms. Lagarde, a lawyer and politician with no previous central
banking experience, might hint at her approach to controversial
policy tools championed by Mr. Draghi, such as negative interest
rates and large-scale bond purchases, known as quantitative easing
or QE.
Some ECB officials have expressed growing concern about the side
effects of years of easy money. In an address to European Union
lawmakers in September, Ms. Lagarde acknowledged such concerns and
signaled the ECB will conduct a lengthy review of its strategy and
policy toolbox. The review is expected to take several months to
complete but it could result in changes to the ECB's target of
keeping inflation just below 2%, or set limits on the use of
negative interest rates or large-scale bond purchases.
Investors had until recently expected the ECB to cut interest
rates again next year, but those expectations faded as the
divisions within the bank's rate-setting committee became
clear.
Ms. Lagarde will likely bring a plain-speaking style to
Thursday's news conference, analysts said, perhaps tweaking its
length, the language used, or the way policy discussions are
depicted. However, any changes to the carefully choreographed event
are risky, as investors hang on central bankers' every word for
clues as to their next moves.
"The impression Lagarde makes on Thursday is extremely important
in the short run," said Carsten Brzeski, an economist with ING Bank
in Frankfurt. "She was presented to investors as a great
communicator."
Federal Reserve Chairman Jerome Powell, another lawyer, has also
sought to bring a more plain-spoken approach to the Fed's
communications since taking over from Janet Yellen last year. But
global financial markets have seesawed as investors struggled to
interpret the central bank's next moves.
Despite holding prominent roles at the IMF and as the French
finance minister, investors know little about Ms. Lagarde's
specific views on monetary policy.
If she provides greater clarity about her views, that would have
a powerful impact in financial markets, said Frederik Ducrozet, an
economist with Pictet Wealth Management in Geneva.
Write to Tom Fairless at tom.fairless@wsj.com
(END) Dow Jones Newswires
December 12, 2019 08:54 ET (13:54 GMT)
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