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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 ($3.03 trillion)
bond-buying program 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 summarizes 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."
($1 = 0.8586 euros)
(Reporting By Michael Nienaber, writing by Francesco Canepa in
Frankfurt, editing by Larry King)
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