The European Central Bank (ECB) decided yesterday to publish its internal economic forecasts for the euro zone to improve markets' understanding of its monetary policy and dispel criticism of excessive secrecy.
The ECB's governing council took the decision at a meeting at which its 17 members also kept the bank's main interest rate unchanged at 4.75 per cent.
The ECB's forecasts, which are produced twice a year by the bank's staff rather than by the council, will appear for the first time in the December issue of the bank's monthly bulletin. The decision to make the forecasts public puts the ECB in line with the US Federal Reserve, whose chairman presents the Fed's economic growth and inflation forecasts twice a year in testimony to Congress.
Economists generally welcomed the ECB's announcement but cautioned that council members would need to provide careful explanations of how the forecasts were likely to influence their decisions. "If it helps in understanding ECB policy, it can only be a good thing," said Mr Avinash Persaud, head of global research at State Street bank. Since the ECB assumed responsibility for monetary policy in the euro zone in January 1999, it has differed from other central banks in publishing neither its forecasts nor minutes of its regular council meetings. This has caused members of the European Parliament and many private sector economists to accuse the ECB of being secretive. The ECB rejects the charge on the grounds that Mr Wim Duisenberg, its president, holds a monthly news conference after a council meeting and other council members give frequent interviews and speeches.
Some economists have argued that the ECB should not publish inflation forecasts because they could restrict the bank's freedom of manoeuvre on interest rates.
For example, if the ECB were to predict that average inflation would be above its target ceiling of 2 per cent a year, this might create strong expectations in financial markets of a tighter monetary policy. However, Mr Otmar Issing, the ECB's chief economist, has stressed that the forecasts, when published, should not be regarded as an automatic signal of the direction of ECB interest rates. Mr Issing said the ECB council "will always need to exercise a policy judgment in deciding how to interpret the staff forecast and the uncertainties around it". The ECB's decision to keep interest rates unchanged yesterday was in line with market expectations, though some economists said an increase was still possible because of continuing inflationary pressures. The US consumer price index rose by 0.2 per cent in October, in line with expectations, after a 0.5 per cent rise in September. Excluding food and energy, the core index rose by 0.2 per cent, compared with 0.3 per cent in September.
