Excerpts from the Account of the monetary policy meeting of the Governing Council of the European Central Bank held in Frankfurt am Main on Wednesday and Thursday, 9-10 March 2016:
Members widely agreed that, while the recovery of the euro area economy was expected to proceed, euro area growth momentum would be slower and inflation lower for longer than previously anticipated. This implied yet another postponement of the date by which inflation was expected to return to rates in line with the Governing Council’s medium-term aim. While much of the downgrade in the inflation outlook was due to falling oil prices and their prevailing future path, measures of underlying inflation were also projected to be weaker than previously foreseen. Concerns were also voiced about the renewed decline in medium-term market-based measures of inflation expectations. Overall, risks of second-round effects appeared to have increased. Moreover, the prolonged volatility in financial markets, amid heightened uncertainty about the global environment and renewed concerns about the health of the euro area banking sector, was seen as a risk to the continued smooth transmission to the real economy of the monetary policy measures taken since June 2014.
Most members favoured the proposed cut of 10 basis points, in conjunction with maintaining the formulation of “at present or lower levels” in the Governing Council’s forward guidance. It was argued that, from today’s perspective, and taking into account the support provided by the policy measures to growth and inflation, policy rates would be expected to remain at very low levels and that further rate reductions would not be anticipated at this stage. Nonetheless, the Governing Council would not rule out future cuts in policy rates, as new shocks could change the outlook for inflation, which might warrant further monetary policy action, with policy rates remaining part of the Governing Council’s toolbox.
Members generally expressed confidence in the effectiveness of the envisaged policy package, even though nuanced views were put forward on the relative merits of the various elements of the package.
While monetary policy had to do whatever was needed to pursue its price stability objective, a strong call was reiterated for other policy areas to step up, decisively, their efforts to strengthen sustainable growth prospects in the euro area, also to avoid the risk of overburdening monetary policy.
Against this overall background, and taking into account the views expressed by the members of the Governing Council, the President concluded that a large majority of voting members supported the proposed policy package, comprising a cut in the interest rates on the Eurosystem’s MROs and on the marginal lending facility of 5 basis points to 0.00% and 0.25% respectively, a cut in the interest rate on the deposit facility of 10 basis points to -0.40%, an expansion of the monthly purchases under the APP to €80 billion, starting in April, the inclusion of investment-grade euro-denominated bonds issued by non-bank corporations established in the euro area in the list of assets eligible for regular purchases, and the launch of a new series of four targeted longer-term refinancing operations, each with a maturity of four years, starting in June 2016.