Banking dilemmas

Robust euro to keep ECB policy stuck on hold

Close up of businessman screaming through megaphone against grey background model released PUBLICATI
Loud, perhaps, but not always clear. Source: Imago, ECB

When the European Central Bank’s governing council meets on Thursday, its members will face growing pressure to tweak their message to financial markets and signal a monetary tightening is on the horizon.

The bank has drawn flak for sticking to its pledge to increase its bond-buying program, either in size or duration, if the euro-zone’s economy deteriorates. As it happens, the region’s economy grew 2.5 percent last year, its fastest rate in a decade. Dropping that promise – the so-called “easing bias” that flags the ECB’s accommodative policy – would suggest the bank believes euro-zone prices are increasingly aligned with its inflation target of just under 2 percent. But that goal may be some ways off: Consumer prices rose just 1.2 percent in February, a slowdown from 1.3 percent a month earlier.

Members of the ECB Shadow Council, an independent advisory group of 15 leading European economists set up in 2002 by Handelsblatt, said it’s time for the central bank to revoke the pledge. “It no longer fits in with the economic situation,” José Alzola, an economist of the Observatory Group, an advisory firm, told Handelsblatt. “The ECB can be confident that price stability is secured,” said Elga Bartsch, chief European economist for Morgan Stanley.

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