Excerpts from the Account of the monetary policy meeting of the Governing Council of the European Central Bank, held in Riga on Wednesday and Thursday, 13-14 June 2018:
Overall, the proposed formulation, indicating the Governing Council’s expectation that policy rates would be kept at their present levels at least through the summer of 2019 and in any case for as long as necessary to ensure that the evolution of inflation remained aligned with a sustained adjustment path, was seen to strike a good balance between providing sufficiently precise guidance and maintaining adequate flexibility. The proposed state-contingent component of the forward guidance on policy rates was widely seen as underlining the gradual and data-dependent approach to policy normalisation. In this regard, explicitly linking a first policy rate rise to inflation evolving along a sustained adjustment path was seen as consistent with the ECB’s forward-looking and medium-term-oriented monetary policy strategy and would underscore the credibility of the Governing Council’s commitment to its price stability objective.
Against this background, members agreed with the communication proposals made by Mr Praet in his introduction. It needed to be emphasised that, while the incoming data had been somewhat weaker than previously expected, the fundamentals remained in place for the medium-term growth outlook to remain solid and broad-based, as also embodied in the June 2018 Eurosystem staff projections. Accordingly, it needed to be highlighted that the underlying strength of the euro area expansion, together with rising price pressures, well-anchored inflation expectations and the continuing ample degree of monetary accommodation, provided grounds for confidence in the sustained convergence of inflation. At the same time, it had to be acknowledged that, although the risks surrounding the euro area growth outlook had remained broadly balanced overall, the incoming information suggested some downside risks to the short-term growth outlook, while risks related to global factors, including the threat of increased protectionism, had become more prominent.
More broadly, it needed to be reiterated that significant monetary policy stimulus was still needed for a continued and sustained adjustment in the path of inflation. It also deserved to be emphasised that, following the phasing-out of the remaining net asset purchases by the end of the year, ample monetary accommodation would still be provided by the sizeable stock of acquired assets and the associated reinvestments, together with the enhanced forward guidance on the key ECB interest rates. In this context, it was important to highlight that, even after a termination of the net asset purchases under the APP, monetary policy would continue to be very accommodative. In particular, it could be stressed that the intention to reinvest principal payments from maturing securities for an extended period of time would still imply a very significant presence in euro area private and public sector bond markets.
Regarding the enhanced forward guidance on policy interest rates, it was felt that the open-ended character of the state-contingent component should be emphasised, with policy rates expected to remain at their present levels for as long as necessary to ensure that the evolution of inflation remained aligned with the Governing Council’s current expectations of a sustained adjustment in the path of inflation, thereby underlining the Governing Council’s consistent and predictable “reaction function” in the pursuit of its medium-term price stability objective.