Riccardo Puglisi
Una firma di tutto riposo
3 Agosto Ago 2012 2245 03 agosto 2012

Saturday Draghi Fever

First premise: I am not an expert on central bank communication, but I read some stuff about it. Second premise: it makes a lot of sense that Mario Draghi, as president of the ECB, should talk (almost) immediately after a meeting of the Governing Council. But: What about the idea of holding these meetings during the weekend? There would be much less volatility on financial markets, as triggered by investors trying to understand and interpret what Draghi said (and did not say).

See what happened on financial markets on Thursday and Friday: on Thursday stocks plummeted, while spreads on Italian and Spanish sky-rocketed, when investors heard from Draghi himself that bond purchases by the ECB or other vehicles such as the EFSF will not be unconditional.

What happened Friday? The opposite of Thursday: stocks went up and spreads went down. Well, there were some reasonably good news about job creation in the US. On top of this, commentators largely agree that investors thought twice about Draghi's words and realised that they were not that bad. In a nutshell: even if the ECB did not take any bold action immediately, there was a (not unanimous) vote within the Governing Council, which supported bold actions in the future, such as bond purchases on secondary markets.

There are conventional actions a central bank routinely takes, such as changing key interest rates. But words, i.e. statements about policy decisions, might be even more important. To the extent that they are credible, those statements tell citizens and investors about the probable course of action by the central bank in the future. This way, the bank can affect long-term interest rates.

So, expectation management is crucial, but those whose expectations have to be managed need time to understand and interpret what the central banker said. Hence, the very simple idea, which I find particularly useful during those difficult times for the EuroZone, is to hold meetings during the weekend. This does not buy a huge amount of additional time to decipher statements, but it goes into the right direction, by adding Sunday (or even Saturday) for some healthy interpretation exercises.


PS. I thank Massimiliano Mannino (@maxmannino) for the musical suggestion, which I partly, and happily, followed...

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