- ECB’s forward guidance set for change soon
The European Central Bank (ECB) Executive Council’s accounts of the monetary policy meeting in Frankfurt on Dec.13-14, 2017 were published last week.
The accounts show that since the October monetary policy meeting, financial conditions have remained very favorable, particularly in improvements in macroeconomic prospects.
The economic indicators are strengthening with positive economic expansion in the Eurozone, accounts of December’s meeting showed.
The biggest difference that distinguishes the last ECB’s published minutes from others is the signal that for the first time in the minutes of a monetary policy meeting, it noted that "forward guidance" might change in early 2018 ahead of market expectations. And this raised the question; "Will the central bank's market language change?"
In the account of its December meeting, the Governing Council said there was a “widely shared” view among officials that communication would need to evolve gradually based on the outlook for growth and inflation. But the language on the monetary-policy stance could be revisited early this year.
Forward guidance refers to communication about the likely future course of monetary policy. As individuals and businesses use this information in making decisions about spending and investments, forward guidance can influence current financial and economic conditions.
The global financial crisis that emerged towards the end of 2008 prompted central banks to implement nonconventional policies and therefore, new communication means were needed in the communication policies of the central banks. In this framework, forward guidance is a key tool of many major central banks.
ECB officials will meet in Frankfurt on Thursday, Jan. 25 when the bank will announce its interest rate decision. At a press conference to be held after the decision, we will see whether the ECB President Mario Draghi will change his "future language".
However, some economists believe that the first step in this direction may be taken at the April or June meeting.