ECB should be ready to disappoint markets sometimes, Nowotny tells paper

Credit: REUTERS/LEONHARD FOEGER

The European Central bank has in the past gone too far in seeking to meet market expectations and should be prepared to disappoint the market sometimes, outgoing ECB policymaker Ewald Nowotny said in a newspaper interview published on Thursday.

VIENNA, Aug 29 (Reuters) - The European Central bank has in the past gone too far in seeking to meet market expectations and should be prepared to disappoint the market sometimes, outgoing ECB policymaker Ewald Nowotny said in a newspaper interview published on Thursday.

Nowotny's remarks echoed comments on Tuesday by ECB Vice President Luis de Guindos, who said the central bank must be critical of market expectations and base its decisions on macroeconomic data.

The ECB has all but promised a stimulus package for its Sept. 12 policy meeting and market expectations have been growing. Investors are already pricing in several rate cuts for the coming year and a fresh round of bond purchases.

"In past years we perhaps followed markets' expectations too intensively and avoided disappointing them," Nowotny, whose term as governor of the Austrian National Bank ends this weekend, told the Wiener Zeitung newspaper.

"I am of the opinion that central banks should be the decisive institution and must therefore sometimes disappoint markets," said Nowotny, who will be succeeded by pensions specialist Robert Holzmann.

He did not elaborate on what kind of disappointment he had in mind.

Rate setters have also been divided about whether to redefine the ECB's policy goal of an inflation rate of just under 2%. Outgoing ECB President Mario Draghi said in July that extending that to both sides of 2% was considered at that month's meeting, and that there would be no cap at that level.

But some of his colleagues seemed to disagree, arguing any discussion about symmetry should go together with a review of the targeted inflation rate or even be part of a broader discussion about the ECB's policy strategy.

Nowotny said he favours inflation targeting along the lines of what the Czech, Israeli or Swedish central banks do -- aiming for 2% plus or minus one percentage point.

"I would support such a view because it means that inflation of 1.6% is also within the target area and therefore requires no monetary policy measures," Nowotny said.

"Draghi by contrast interprets 'symmetry' in such a way that lower interest rates are in place for a longer period: 'lower for longer' is the slogan here. I actually consider that to be a problematic signal."

(Reporting by Francois Murphy Editing by Frances Kerry)

((francois.murphy@thomsonreuters.com; +43 1 531 12 254;))

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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