ECB’s Philip Lane says communication shapes market expectations

ECB Executive Board member Philip Lane says central-bank communication can move financial markets even when interest rates do not change, and argues that explaining how policy decisions are made can help markets interpret economic news.

In a speech delivered in London on 10 November, Lane reviewed ECB research on how statements and speeches affect expectations, and outlined how the bank has changed its approach to communicating policy. He said communication between rate-setting meetings can influence interest rates across different maturities, while messages to households and businesses are harder to deliver effectively because people pay varying levels of attention to inflation.

ECB research cited in the speech found that information in the bank’s monetary-policy statements can improve forecasts of euro-area core inflation several quarters ahead. Lane also said text-analysis tools, including large language models, can help measure the tone of central-bank communication, but stressed that their results require careful validation.

The speech distinguishes between announcing a rate decision and explaining the framework that guides future decisions. Lane said the ECB’s current approach sets out the factors policymakers assess, including the inflation outlook, incoming data, underlying inflation and the strength of monetary-policy transmission. He argued that this can anchor expectations without tying the bank to a specific future path for interest rates.

The claims are Lane’s account of ECB research and policy practice, not a new rate decision. He said the views in the speech were his own and should not be taken as the collective position of the Governing Council. In an earlier speech, he likewise set out his personal assessment of the euro-area inflation outlook and the case for a measured policy response.