Macro

Lagarde’s hearing by the EP’s ECON Committee – What we already know

Christopher Dembik

Head of Macro Analysis

Summary:  From 10.30 am today, Christine Lagarde will be heard by the European Parliament’s ECON Committee. We had read the 37 pages where she answers to written questions from MPs.


From 10.30 am today, Christine Lagarde will be heard by the European Parliament’s ECON Committee. We had read the 37 pages where she answers to written questions from MPs. You can have access to the document here.

We highlight below the main takeaways.

1/ On the evolution of monetary policy

She endorses unconventional tools, including the OMT programme and negative rates, as she has done it previously (Speech in 2013 at the Fed of Kansas City): “The easing measures deployed since June 2014, including targeted longer-term refinancing operations, negative rates, large-scale asset purchases and forward guidance, were successful in fending off the risks of deflation and redenomination at the height of the crisis”.

She also lets the door open to further easing, confirming by the way she will follow Draghi’s path: “Given the current inflation outlook, a highly accommodative stance of monetary policy will likely still be needed for some time”; “it remains appropriate for the ECB to provide an ample degree of monetary policy accommodation to support the expansion of the economy” and “at the current juncture, policy normalisation is premature”.

Interestingly, she has not discussed a tiering system, which causes divergence among the Governing Council according to the latest ECB minutes.

2/ On the ECB mandate

She carefully sticks to the ECB mandate and the inflation target of “below, but close to, 2%”. Asked about structural growth and ecological transition, she considers that the ECB has done its jobs and that monetary policy is not always the most effective tool to deal with such issues. But she timidly mentioned that the central bank needs to support “the general policies in the EU, such as sustainable and inclusive growth”. This does not represent a real change, but it confirms that the ECB mandate cannot be only devoted to price stability and financial stability.

3/ On ECB communication

“Communication has become a core tool of central bank policy”. Certainly. However, too much communication is not all good. In a recent speech “Can central banks talk too much?”, Hyun Song Shin, Adviser and Head of Research of the BIS, got an important point: the louder central banks talk, the less informative are market prices and the less they should read from them. This is key to understand by policymakers and market participant.

4/ On the role of the euro

What I certainly consider as the most interesting part was the mention of the role of the euro: “My ultimate premise is that the euro is a European public good that should continue to improve its international standing”. Unfortunately, she has not given yet more inputs on that key topic. There has been lately a lot of talks about ways to improve its international role and my understanding is that Lagarde could probably be the best policymakers to push in the right direction, due to her previous professional experience.

5/ On cryptocurrency

She keeps an open mind regarding cryptocurrency and she confirms the need for further regulation, which is broadly in line with the EU consensus: “The emerging stablecoin projects, of which Facebook’s Libra initiative is an example, are a private sector attempt to improve existing financial services and can bring benefits with respect to efficiency of cross-border payments and for financial inclusion”.

Conclusion: It was a rather uneventful Q&A. We should not forget that this is a very formal exercise with low policy implications. Thus, expectations were low. As we have previously stated, Lagarde’s first and main tasks will be to implement monetary policy decided by Draghi and unveiled on September 12th. In the long run, we still believe that she could positively surprise on more political topics, such as the role of the euro or maybe even on cryptocurrencies.

Disclaimer

The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website is not intended to and does not change or expand on this. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
- Full disclaimer (https://www.home.saxo/legal/disclaimer/saxo-disclaimer)
- Full disclaimer (https://www.home.saxo/en-sg/legal/disclaimer/saxo-disclaimer)

None of the information contained here constitutes an offer to purchase or sell a financial instrument, or to make any investments. Saxo Markets does not take into account your personal investment objectives or financial situation and makes no representation and assumes no liability as to the accuracy or completeness of the information nor for any loss arising from any investment made in reliance of this presentation. Any opinions made are subject to change and may be personal to the author. These may not necessarily reflect the opinion of Saxo Markets or its affiliates.

Saxo Markets
3 Church Street, #30-00
Samsung Hub
Singapore 049483

All departments are available 08:30 to 17:30 Monday to Friday.

Singapore

Saxo Capital Markets Pte Ltd ('Saxo Markets') is a company authorised and regulated by the Monetary Authority of Singapore (MAS) [Co. Reg. No.: 200601141M ] and is a wholly owned subsidiary of Saxo Bank A/S, headquartered in Denmark. Please refer to our General Business Terms & Risk Warning to consider whether acquiring or continuing to hold financial products is suitable for you, prior to opening an account and investing in a financial product.

Trading in financial instruments carries various risks, and is not suitable for all investors. Please seek expert advice, and always ensure that you fully understand these risks before trading. Trading in leveraged products such as Margin FX products may result in your losses exceeding your initial deposits. Saxo Markets does not provide financial advice, any information available on this website is ‘general’ in nature and for informational purposes only. Saxo Markets does not take into account an individual’s needs, objectives or financial situation.

The Saxo trading platform has received numerous awards and recognition. For details of these awards and information on awards visit www.home.saxo/en-sg/about-us/awards.

The information or the products and services referred to on this website may be accessed worldwide, however is only intended for distribution to and use by recipients located in countries where such use does not constitute a violation of applicable legislation or regulations. Products and Services offered on this website is not intended for residents of the United States and Japan. Please click here to view our full disclaimer.

This advertisement has not been reviewed by the Monetary Authority of Singapore.