ECB officials agreed that monetary policy needed to remain prudent, patient and persistent and recognised that the risks surrounding the euro area growth outlook had moved to the downside, amid geopolitical uncertainties, the threat of protectionism, vulnerabilities in emerging markets and financial market volatility, minutes of the January meeting showed.
Excerpts from Account of the monetary policy meeting of the Governing Council of the European Central Bank, held in Frankfurt am Main on Wednesday and Thursday, 23-24 January 2019:
Members underlined that specifying the forward guidance on the Governing Council’s policy instruments in terms of both a time-based leg and a state-contingent leg had served it well. The observation was made that, in response to the recent weaker than expected data, some easing in financial conditions had taken place through an outward shift in market expectations for the timing of a first rise in key ECB interest rates. This endogenous response was viewed as being consistent with the state-based elements of the Governing Council’s forward guidance and contributed to preserving the financial conditions on which the projected inflation convergence remained contingent. The “chained” forward guidance on the key ECB interest rates and the reinvestments was seen as functioning as a kind of automatic stabiliser, particularly in situations when further easing was deemed desirable in reaction to weaker than expected data.
There was wide agreement that the continued convergence of inflation to the Governing Council’s aim in the period ahead still required an ample degree of monetary accommodation.
A number of remarks were made regarding available monetary policy tools in the domain of longer-term liquidity provision. Any potential new operations should reflect the monetary policy objectives to be achieved. While any decisions in this respect should not be taken too hastily, the technical analyses required to prepare policy options for future liquidity operations needed to proceed swiftly.
On communication, members widely concurred with the elements proposed by Mr Praet in his introduction. Accordingly, it was seen as appropriate to acknowledge that the incoming data had continued to be weaker than expected but that supportive financing conditions, favourable labour market dynamics and rising wage growth continued to underpin the expansion and gradually rising inflation pressures in the euro area. At the same time, it had to be recognised that the risks surrounding the euro area growth outlook had moved to the downside on account of the persistence of uncertainties related to geopolitical factors and the threat of protectionism, vulnerabilities in emerging markets and financial market volatility. In this regard, the need to communicate cautiously was stressed, in order to strike the right balance between credibility in acknowledging the weaker than expected data and conveying confidence in the adjustment towards the Governing Council’s medium-term inflation aim.
Consequently, the Governing Council would reconfirm its forward guidance on the key ECB interest rates and on the reinvestment of the principal payments from maturing securities purchased under the asset purchase programme.
Members agreed that monetary policy needed to remain prudent, patient and persistent and to continue to follow a data-driven approach in the period ahead. At the current juncture, a steady hand was seen as warranted and discussions with regard to monetary policy operations or the forward guidance were deemed premature. At the same time, the Governing Council needed to reiterate that it was prepared to act if needed.
2/21/2019 12:48:36 PM