ECB should stop using 'code words'
The European Central Bank will stop using "code words" to signal interest rate changes when the current tightening cycle ends, German Bundesbank President Axel Weber vowed in an interview published yesterday.
Weber, a leading member of the ECB's governing council, told the Financial Times that the bank would abandon phases like "strong vigilance", which was used to indicate that borrowing costs would rise.
For ordinary people, or politicians, code words were "like using a foreign language", Weber admitted to the FT.
"Some players in the market may need such code words. It is like a broad hint," but plain speaking is preferable, he said.
"When I talk to market people and to the general public, code words are probably the least helpful part of the communication... In an economic environment with conflicting signals, it helps to lay out and communicate the broad-based analysis from which we draw our conclusions."
Weber reckoned that key words could be useful in a normalisation phase, raising interest rates to a level in line with the speed of economic growth.
But he added: "Towards the end of such a period it will become more difficult to use them and therefore I think that those words will at some point naturally disappear from statements."
Code words "cannot replace a deeper analysis of economic and monetary developments," he added.
"What is more important for monetary policy is to give some medium-term orientation on how certain information that comes in is processed."
AFP
(China Daily 05/30/2007 page16)
