Updated April 22nd, 2024 at 12:11 IST

ECB Governors concerned over Fed-style 'Dot Plot': Report

The concerns raised underscore the complexities within the eurozone's structure compared to jurisdictions with centralised national governments.

Reported by: Business Desk
ECB | Image:Unsplash
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ECB interest rate forecasts: European Central Bank (ECB) governors are apprehensive about the potential adoption of a Federal Reserve-style "dot plot" to publish interest rate forecasts, fearing it could subject them to political pressure from governments seeking to align monetary policy with domestic agendas, news agency Reuters reported quoting sources familiar with the matter.

The concerns raised underscore the complexities within the eurozone's structure compared to jurisdictions with centralised national governments, such as the United States and Britain.

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Last week, ECB board member Isabel Schnabel of Germany proposed the idea of releasing a "dot plot," akin to the practice of the U.S. Federal Reserve, to provide markets with policymakers' projections on the future trajectory of interest rates. However, discussions with 13 of her colleagues from the eurozone's 20 national central banks during the International Monetary Fund and World Bank spring meetings in Washington revealed widespread skepticism.

Governors expressed fears that publishing such forecasts would open them up to political scrutiny, as politicians could attempt to discern the stance of their respective central bank chiefs and pressure them to align with national objectives.

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Unlike the Federal Reserve, where 'dot' forecasts remain anonymous, the ECB governors foresee potential political interference due to the decentralised nature of the eurozone. Despite some governors acknowledging potential benefits or expressing willingness to explore the proposal further, concerns persist regarding the preservation of central bank independence.

The ECB, in its efforts to insulate governors from political pressures, refrains from publishing vote splits after policy decisions and anonymises policy meeting accounts.

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The coming review of ECB practices, scheduled to commence next year, will likely delve deeper into these issues. Schnabel also proposed incorporating alternative scenarios into the ECB's projections, a suggestion met with mixed reactions among her colleagues.

Meanwhile, former Fed Chair Ben Bernanke advised the Bank of England against adopting the dot plot, instead recommending a single rate projection akin to Scandinavian central banks' practices. The Bank of Korea is also contemplating revisions to its guidance on future interest rates to enhance transparency.

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(With Reuters inputs.)

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Published April 22nd, 2024 at 12:11 IST