Naturally, the interest rate decision and everything surrounding it took centre stage earlier this month when the board of the European Central Bank (ECB) met in Frankfurt. And of course, during the press conference, questions focused on what we can expect in the coming quarters. Like many others, I was tuned in, eager for insights.
Let’s pause briefly: Christine Lagarde, President of the ECB, didn’t offer much clarity on the interest rate trajectory for the coming quarters, for the simple reason that she couldn’t.
But towards the end of the press conference, there was a moment that, upon closer inspection, contained a rather revealing message—likely unintentional. It’s a moment most people will have forgotten by now. So, rather than another detailed analysis of the rate decision—though I will touch on that briefly—this column will focus on that one short moment as the meeting drew to a close.
The ECB trimmed its key rate by 25 basis points, bringing it down to 3.5 percent. Given that the next rate meeting is just around the corner, in about a month’s time, the ECB won’t have much new economic data from the eurozone to consider. It therefore seems highly likely that the next rate cut can be expected in December.
José Luis Escrivá
Sitting at the ECB board table was a new face: José Luis Escrivá, the new head of Spain’s central bank. Lagarde was asked about his arrival and responded, “I hope that he, like all the other board members, will continue not only to offer his personal opinion—one that may be shaped by Spain’s circumstances—but also take into account the European dimension, as the other board members do.” Now, that’s quite a statement!
Did Lagarde’s response imply something that many suspect, myself included, namely that a significant number of ECB board members base their decisions primarily on what benefits their own country, rather than what is best for the entire eurozone? It certainly seemed that way, if you ask me. And did Escrivá do so in such an obvious manner that it even began to irritate Lagarde?
An interesting detail here is that Escrivá, prior to his appointment, was a minister in the Spanish government. Generally, it’s not a good sign when politicians swap ministerial roles for a seat at the central bank’s board. It smacks of political interference in rate decisions and could further erode the ECB’s credibility and independence.
Edin Mujagić is an economist, fund manager at Beleggingsfonds Hoofbosch, and author of the book Keerpunt 1971. He writes a monthly ECB Watch for Investment Officer, analysing the European Central Bank’s monetary policy.