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Some ECB Officials Are Said to Urge Clearer Interest-Rate Signal

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  • Rates to stay on hold until ‘well past’ end of bond-buying
  • Some policy makers fear the vagueness stokes market volatility
Credit Suisse's Jalinoos on Euro Strength and the ECB

A group of European Central Bank policy makers is urging President Mario Draghi to give investors a clearer signal on how long the institution will keep interest rates unchanged, according to euro-area officials familiar with the matter.

Some Governing Council members at last week’s meeting argued that the ECB needs to be more specific than its current expectation that it will keep rates on hold until “well past” the end of asset purchases, the officials said. The concern is that the vagueness of that phrase could contribute to market volatility that weakens the economy, they said, asking not to be identified because the deliberations are confidential.

Draghi didn’t want to change the wording and there was no extensive debate, the people said. Some Governing Council members are comfortable with the “well past” phrase, arguing that it gives them more flexibility in setting the appropriate level of monetary stimulus for the inflation outlook, one of the officials said.

An ECB spokesman declined to comment. Draghi said in his press conference after the meeting that there were no “existential” differences between policy makers.

Read more: Here’s One Way ECB Could Tweak Its Language on Interest Rates

Tightening the language on rates would be welcomed by more-hawkish officials, who want to set a definite end-date for asset purchases. A clearer signal on how long borrowing costs will remain at record lows could let the Governing Council do so without shocking markets into speculating on a sudden stop to ultra-easy money.

Investors are intensifying their scrutiny of the Governing Council’s communications as the euro zone’s economic expansion raises expectations that quantitative easing, which will total 2.55 trillion euros ($3.2 trillion) by September, is close to being halted. While the ECB says the program will be extended again if needed, most economists surveyed by Bloomberg foresee it being wound down by the end of the year. That brings the timing of a rate hike into sharper focus -- with widely varying estimates.

Market Bets

Barclays Plc predicts an increase in the deposit rate this year, despite Draghi saying at last week’s press conference that he sees “very few chances at all” that rates could be raised in 2018. UBS Group AG and Pictet Wealth Management both foresee a hike in the third quarter of 2019. Market-based measures indicate borrowing costs will first increase by March next year.

The euro and bond yields are proving sensitive in recent weeks to any communications by ECB policy makers on the program. The single currency jumped the most in three years on Jan. 12 after an account of the December policy meeting showed officials might review their policy language early in 2018.

Yield Volatility

Bond yields surged on Monday after Dutch central-bank governor Klaas Knot called for purchases to end as soon as possible, then dropped again after Bloomberg reported that the Governing Council assumes purchases will be only gradually wound down after September.

ECB chief economist Peter Praet, who has typically argued for flexibility in policy, acknowledged the perceived lack of clarity in the market in a speech on Monday.

“There is some uncertainty because you don’t know today what will be ‘well past’, and markets are saying ‘is it mid-2019? Is it first quarter of 2019?’,” he said in Brussels. “We are going to check, of course, financial conditions, and how the expectations around ‘well past’ affect financial conditions, and then we will see what we communicate.”

— With assistance by Piotr Skolimowski

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