More than 360 leaks of sensitive information to the press have occurred from within the eurozone’s central banks over a 20-year period, the European Central Bank said on Friday, as it called on markets to ignore reports based on them.
After trawling through stories by financial news wires Bloomberg, Reuters and MNI, ECB research found 368 stories based on leaks from central bank insiders between 2002 and 2021. However, the research said, while leaks often move markets more than public statements by rate-setters, they were unreliable indicators of future decisions and should be treated with caution.
“Looking back after the decision is made, preceding leaks usually did not move market rates closer to the actual policy outcome,” the officials said. “Our findings suggest that market participants would be well advised to ignore such unattributed communication in most cases.”
ECB president Christine Lagarde has tried to reduce leaks since taking over from Mario Draghi in November 2019 by urging fellow rate-setters to hold back from expressing dissent on policy decisions in the run-up to meetings or in their immediate aftermath.
The number of articles based on leaks from ECB insiders has declined since Lagarde took over, falling from a peak of 36 in 2019 to 22 in 2021, according to the research by officials from the ECB, the Austrian central bank and the Bank for International Settlements.
The officials found there had recently been a “substantial increase” in leaks following policy meetings of the ECB’s main rate-setting governing council, which had often weakened the message delivered in the official announcement.
Many of those meetings have resulted in controversial decisions. Draghi clashed with several of the governing council’s more hawkish members, including the Dutch, German and Austrian central bank heads who act as rate-setters.
“Leaks are more frequent when the policy debate is more controversial — when there may be significant disagreement among policymakers,” the officials said.
The most controversial decision in recent years was after it cut rates for the last time and restarted bond purchases at one of the former final meetings in September 2019. The decision prompted a flurry of public and private criticism from rate-setters, some of whom felt they had been cornered by Draghi into accepting the decision.
Lagarde has adopted a different leadership style to Draghi, opting to rally rate-setters around a decision and then explain it, rather than leading from the front and expecting others to follow.
Despite stories based on leaks often reflecting minority views and “generally” not providing reliable information about upcoming policy decisions”, they did move markets.
Looking at movements every 35 minutes in the overnight indexed swaps market, in which investors bet on interest rate moves, the researchers found that leaks caused prices to move 60-95 per cent more than normal. They also said leaks moved markets 15-30 per cent more than average public statements by ECB governing council members.
Leaks “often reverse earlier market trends in short-term rates” by going against the public expectations for policy decisions. Often public statements by rate-setters “mitigate the impact of leaks” by reversing some of their market impact.
The officials said leaks “do not have a substantial effect on policy decisions and usually do not reduce policy flexibility”. They added that “many leaks just add noise to the debate and volatility to markets”.
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