FRANKFURT, Nov 4 - The show's the thing. There is virtually no doubt that the European Central Bank will hold interest rates steady this week. So the focus will be on the performance of Jean-Claude Trichet at his first press conference as ECB President on Thursday. Economists and market analysts said the challenge for Trichet is to live up to his top billing as the great communicator, able to convey messages smoothly to financial markets that too often were roiled by the first ECB President Wim Duisenberg, who stepped down last week. It will be more about style than substance. "Is he indeed more diplomatic than his predecessor? Will he live up to expectations and not make verbal missteps?" said Holgar Schmieding, co-head of European economics at Bank of America. "If Trichet minces his words well, he will have earned his reputation."
On monetary policy, financial markets are merely seeking reassurance there is a steady hand on the tiller and that Trichet sticks to the theme that economic recovery is slowly building in the 12-nation euro zone and inflation heading below the central bank's two percent ceiling next year -- the message ECB policymakers have been sending for several months now. "The ECB is well aware that the world press will be on alert for every small change. It's guaranteed, therefore, that continuity will be writ large," said Klaus Baader, economist at Lehman Brothers. The consensus-driven ECB Governing Council also wants to hear no policy freelancing from its new boss, said Eric Chaney, economist at Morgan Stanley. "This is like the Communist Party," he said.
QUOI?
Trichet certainly has a reputation for diplomacy. Not once did he stick his head above the parapet in the 4-1/2 years he sat on the ECB's policy-setting Governing Council as Bank of France governor. Thus financial markets and ECB watchers are set for no change in ECB rates, now at record lows of 2.00 percent, before the end of this year. The ECB announces its decision at 1245 GMT on Thursday, followed by Trichet's news conference at 1330 GMT. After that, their opinions diverge. Financial futures are positioned for a 0.25 percentage point rate increase by March 2004, given accelerating global growth now the United States is roaring back to life. Economists are more cautious, with many expecting the ECB to delay a rate hike until the second half of next year. The Bank of England, in contrast, looks set to raise rates on Thursday, making it the first of the world's top four central banks to end the rate-cutting that began in January 2001. Analysts said the two-page statement explaining the ECB's economic and monetary analysis lying behind its rate decision would be the place for hints the ECB is headed that way. But they doubt Trichet is ready to shift expectations yet. "We will probably get a slightly more optimistic tone on the growth outlook, and inflation picking up a little. But that will be modest shift in tone," said Schmieding. Thus the news media questions will be Trichet's main proving ground. That may be more challenging for the markets than they perhaps realise. "Duisenberg was frequently very direct. Trichet expresses himself in a more nebulous way, presenting his arguments at a high level of theoretical abstraction," said Baader said. In short, financial markets may find they have a new language to learn.//