BERLIN (Reuters) - The European Central Bank should clarify the pace at which it intends to raise interest rates when the time for further policy tightening comes, ECB board member Benoit Coeure said on Monday.
Steering market expectations has been a key challenge for central banks across the world since the start of the financial crisis in 2008 as policymakers battled a lending freeze and fears of an unprecedented depression.
After years of aggressive stimulus, the ECB has been preparing investors for the end of its 2.6 trillion-euro (2.31 trillion pounds) bond-buying programme in December and for the first interest rate increase since 2011 sometime after the summer of next year.
Coeure made the case for clarifying the path of subsequent rate increases while making it conditional on how the economy develops.
“Should economic conditions warrant, there might be a case for the Governing Council to go beyond the timing to lift-off (rates) in further clarifying the pace at which it expects to remove policy accommodation,” Coeure told a conference.
“A further clarification of our reaction function might help market participants and the broader public to better anticipate the likely future path of short-term interest rates,” he added.
The ECB’s current guidance that rates will stay at their current, record-low level “through the summer” of next year has given rise to different interpretations among policymakers and investors alike.
In 2012, the Federal Reserve started publishing a “dot plot” charting the view of each policymaker on where interest rates should be in the future, albeit without names.
Coeure said this risked creating a “cacophony” of diverging views that could confuse market participants. Instead, he argued for a “state-contingent” guidance that summarises the ECB’s Governing Council view.
“One of the benefits of this type of forward guidance is that it remains a product of the economic conditions that give rise to it,” he said. “Should those conditions change, policymakers may reformulate or repeal the guidance altogether.”
Coeure added it would be difficult for the ECB to provide numerical guidance on one policy rate given that it has three - one each for daily and weekly lending and another for the cash being deposited at the central banks.
“Numerical guidance on our main refinancing rate... might be of little value to market participants at shorter horizons, unless we were to convey, in parallel, information on the expected width of the rate corridor,” he said.
“These are important decisions that need time and careful deliberations.”
Reporting By Michael Nienaber, writing by Francesco Canepa in Frankfurt, editing by Larry King